According to trade sources and analysts, India's low-sulfur diesel shipments to Europe are expected to reach a new two-year low in January following an all-time high last month due to increased freight costs associated with security concerns around the Red Sea. Volumes have decreased by almost 80% month over month to 33,400–58,000 barrels per day (bpd), according to shiptracking data from Kpler, LSEG, and Vortexa.
According to merchants and analysts, sellers of Indian-origin cargo may soon turn to Asia for customers due to persistently high freight costs. This would further restrict supply into Europe ahead of the refinery maintenance season. To account for the war risk premium, freight rates on the Asia-Europe route have increased by more than 30% within the last week.
Image Source: Hindu
The export of fuel
Shell's Pernis plant in the Netherlands, Europe's largest oil refinery, has begun maintenance that will shut down half of its 400,000 barrels per day capacity until mid-April. From mid-February to late April, ExxonMobil will be closed for repairs at its 191,000 barrels per day refinery in Rotterdam.
According to a regional trader handling cargoes of Indian origin, cargoes loaded from India usually travel to Europe via the Bab-el-Mandeb strait. However, since the Houthi attacks on Red Sea ships, this route has become dangerous, increasing freight costs and effectively closing the arbitrage since the first half of January.
Based on the comments of a regional trader handling cargoes of Indian origin, the east-west arbitrage disparity has increased by nearly the same amount as freight costs, if not less. As a result, the arbitrage has been essentially closed since early January.
Robust jet fuel
Despite this, India's aviation fuel exports to Europe have stayed consistent due to a stable demand and an open arbitrage window. According to a source stationed in Europe, prompt jet fuel exchange prices are currently trading at least $3 per barrel above diesel, which is equal to the additional freight cost surcharges.
According to Vortexa and Kpler ship-tracking data, at least 88,000 bpd of jet fuel for January will probably be headed for Europe.
Image Source: Reuters
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