Why India's Diesel Exports to Europe Slowed Down in May, Check Outlook Here
Why India's Diesel Exports to Europe Slowed Down in May, Check Outlook Here

Indian refiners have reduced their use of crude oil tankers to ship diesel to Europe in May, following a surge in exports last month. According to trade sources and analysts, this decrease is due to rising inventories in the Antwerp-Rotterdam-Amsterdam region and unstable diesel price spreads between the East and West.

Shift in Export Strategy

In April, Indian refiners shipped large volumes of diesel to Europe, supporting Asian margins. However, fewer shipments in May will likely force Indian refiners to redirect their diesel sales back to Asia, worsening the supply glut in the region.

April Exports Hit Near Two-Year High

Data from Kpler, Vortexa, and LSEG shiptracking showed that diesel exports using Suezmax and Aframax vessels, mainly from Reliance Industries' Jamnagar refinery, reached about 380,000 metric tons (2.831 million barrels) in April. In February, Kpler estimated that 35 Aframax crude tankers were switched to carry refined products instead of crude oil.

Impact of Freight Rates and Market Conditions

Traders turned to Suezmax and Aframax tankers, typically used for crude oil, to transport "clean" refined products due to a spike in freight rates for long-range (LR) tankers. This increase followed Houthi attacks on ships in the Red Sea, which led to longer voyages and limited vessel availability. Emma Howsham, a research analyst at Wood Mackenzie, noted that the tight market for LR1 and LR2 clean product tankers was a result of these extended voyages and displaced ships.

The weaker crude oil market, affected by refinery maintenance in the United States and Middle East, also made it more attractive to ship diesel using these tankers.

Cost Considerations

Shipping 65,000 tons of fuel on an LR1 tanker from India to northwest Europe averaged $75 per ton in March and April, up from $60 per ton in February, according to SSY Tanker pricing data. Despite the costs of cleaning a vessel to load ultra-low sulfur diesel, it was still nearly half the cost of shipping 130,000 tons on a Suezmax vessel on a similar route.

Traders, who are among the largest shippers of Indian diesel, prefer using larger vessels due to the flexibility in discharge destinations.

Outlook for May

In May, there have been no shipments of diesel using crude tankers from India to northwest Europe, as shiptracking data indicates. Analysts expect Europe's diesel supply to remain ample, making it economically challenging for Indian refiners to export to Europe via the Cape of Good Hope. "European supply looks ample in the coming months," said Woodmac's Howsham.

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