Argentina tries to head off shortages for transportation diesel, power generation

Argentina's Cammesa was set to award multicargo fuel oil and high sulfur diesel tenders due March 31, but those were for power generation, while it is a shortage of transportation diesel that brings greater worries for the country.

YPF, the biggest oil producer and refiner in Argentina, said March 29 that it would guarantee access to diesel for farmers during the spring harvest of major export crops. The statement came as a trade group for retail fuel outlets said some stations have started rationing diesel sales because government price controls and import restrictions are discouraging refiners from bringing in enough supplies. Pump prices are 30% less than import prices would be, according to the Confederation of Hydrocarbon Entities, or Cecha.

Raizen, a Brazilian entity that is also the second-largest Argentinian refiner, had tenders due March 30 and 31 for a cargo each of ULSD and gasoline, sources said. Delivery is into the Alpha Zone port typically used to supply Argentina. Several sources said there was no word late March 31 for Cammesa's or Raizen's tenders.

"In Argentina, there is a big problem that will probably create a shortage of diesel in the local market," a market source said. "The problem is the local prices. They are too low compared to imported products. If it's imported, there is a big loss. The other alternative that the government was pushing is to have the local refineries refine more product in Argentina and produce more diesel."

Diesel production within Argentina rose only 1.5% on the year in January, according to the state statistics agency Indec. Refiners said they have stepped up imports despite rising global prices and sell locally at government-controlled prices nearly a third less.

Finding diesel cargoes is not easy either, with Europe pulling the marginal distillate barrel instead of Latin America. While not for road fuel, Argentinian wholesale power administrator Cammesa was out with a seven-cargo tender for fuel oil and five-cargo tender for HSD, due March 31. Cammesa's HSD tender is among the biggest in March but far shy of its 18-cargo one awarded to six entities in early February.

A Brazil source said that like most countries in Latin America, the main concern is diesel. "They are not worried with gasoline," he said. "We are very worried about the diesel supply chain."

"Demand for refined products has increased drastically in Brazil but refineries aren't able to satisfy those demands," said a shipowner.

The first source said Argentina may draw its diesel from Brazil instead of the usual US sourcing, given the wide-open arbitrage for ULSD from the US Gulf Coast to Europe to replace Russian supplies.

Both countries show healthy but slightly lighter-than-normal product cargoes en route, according to Platts cFlow trade-flow analytics software. On March 31, two Medium Range tankers were placed on subjects for loading clean product beginning April 6 at w257.5 and w265, traded one after another. The bolster in tanker freight for the USGC-Brazil has been supplemented by an already tightened tonnage list for the Americas clean tanker markets.

At least 11 ships were en route to Brazil with clean product supply, but only one is fresh out – the Great Manta out of the USGC. Most others are primed for discharge, including the Eternal Sunshine and Ladon listed carrying gasoil and several others like the Stena Progress likely carrying it. At least eight ships are headed to Argentina, with only the Starman more than a few days away, out of the USGC with clean product. Two Medium Range and two Long Range 1 tankers are expected to load ULSD out of the Gulf Coast to Brazil. Meanwhile, the Pacific Quartz is carrying ULSD from India and the STI Virtus gasoil from Brazil, while several others list unknown cargoes.

Shipping fixtures have been quite active for Latin American products, with the primary focus on Brazil as the destination. Eight MR-sized tankers capable of carrying 300,000 barrels were booked between March 28 and March 31 by charterers such as Valero, Chevron, Trafigura, Petrobras, Braskem, and BB Energy. But the supply of tankers for both MR and LR1 tankers capable of carrying 500,000 barrels or more will be difficult to allow competition for freight rates in light of rising demand. Trading for March 31 essentially depleted the position list for tankers exiting the Gulf Coast, market sources said.

About 16 cargoes were left uncovered as freight rose 8% on March 31 for the 38,000 mt USGC-Brazil route, and 25% for the 60,000 mt USGC-Brazil market.

"It's a perfect storm," another Latin American products trader said. "Refiners are selling FOB at high premiums to end users in Brazil who, given their lack of expertise and need to fix boats, are increasing freight numbers on a WorldScale basis ... in one shot."