Latin American diesel prices have backed away from record highs just enough that market sources say they finally see some easing in the refined product markets due to new sourcing options from Asia and Europe.
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"Yes, the market is relaxing," one Latin America source said. "I think the whole distillates market will go down."
This comes on the heels of two multi-cargo ULSD tenders unveiled in the region after two weeks of no new refined product tenders. Colombia had even canceled tenders for ultra low sulfur diesel, gasoline and naphtha as its end-April award date coincided with fresh daily highs until a record $186.12/b on May 4 for ULSD import parity prices. The Platts IPP price for Colombia ULSD declined every day since to $163.66/b on May 12, according to S&P Global Commodity Insights.
Latin American diesel prices are fading from record highs, but remain historically higher than any time before the Russian invasion of Ukraine. Freight rates have eased even more, roughly halving record prices set in April for USGC-Latin routes.
Waterborne premiums also were falling in the US Gulf Coast, the main source of diesel for the region, and plunged May 13. The premium paid for barges and cargoes compared with the more liquid pipeline assessment had risen to 13.45 cents/gal by mid-April, the highest level in at least seven years. But it was talked May 13 at pipeline plus 3 cents/gal.
Market sources from both sides of the Atlantic attributed the waterborne decline to less USGC cargo demand from Latin America. "You're seeing Arab Gulf and West Coast India barrels competing into Latin America," a USGC trader said.
"The arb is better from the [Persian Gulf] to LatAm than from Europe to LatAm, and definitely better than from the US to LatAm," a European diesel trader said. "New York will even attract some barrels from the [Persian Gulf] if they can produce the cold properties."
Latin American demand
But Latin American entities still were heard to be paying a premium for cargoes, a trend for months, especially as they have canceled tenders, delayed awards and reduced volume because of a lack of offers or to cope with high prices.
Petroperu just awarded BB Energy and Shell a cargo each in a purchase tender for end-May delivery, a quicker-than-normal delivery that sources said cost them a higher premium than previous tenders. Chilean private distributors Enex and Esmax also asked for 2.4 million barrels, or eight cargoes worth, of ULSD, although for delivery starting in September. In earlier rounds, where big tenders have emerged, lastly in late April, premiums have more than doubled from levels before the war.
The big markets outside of Mexico are Brazil and Argentina. The former was seen as well-supplied in May after a stressed April. The latter was poorly supplied because local prices were much lower than import prices. A trade group said service stations were rationing diesel at one point.
"Argentina is so short that they may now be paying higher values to get prompt barrels," a second Latin American source said, but adding that Brazil will benefit even further by Petrobras' recent price formula change that raises domestic production prices to import parity levels, unlike in Argentina. "That should produce increased flows to Brazil."
Several traders and other sources said Brazil has been buying more cargoes than usual from the East instead of the USGC.
"I think some AG diesel heading to Brazil is putting a bit of pressure on the FOB USGC," a third Latin trader said.
Changing trade flows
Platts cFlow ship and commodity tracking software from S&P Global showed 17 cargoes en route to Brazil, including a bunching of ships from the USGC a few days out from Brazil, but only one ship that set sail in the last week. Ships from elsewhere included Janine K from Gibraltar, though likely carrying naphtha, Zefyros from Angola, and Silver Etrema and Stolt Calluna from east Asia.
BW Hawk is also out of Amsterdam with Brazil and Ecuador as options, likely carrying ULSD, according to market sources. Hafnia Nordica out of Gibraltar just dropped off jet fuel into the Caribbean. Argentina shows only three ships en route, but one, the Fairchem Blade, is likely carrying gasoline from Singapore.
Ship fixtures heard by Platts show several other cargoes fixed for upcoming Latin America journeys, including Arctos loading ULSD May 16 from Sikka, India, to Brazil by Reliance; Omodos, loading ULSD May 12 from Gibraltar to Brazil by Admic; GWN2 loading unleaded gasoline May 20 from ARA to eastern Mexico for PMI; and Sandpiper Pacific, loading unleaded at an undetermined date from ARA to Argentina for ExxonMobil. Two diesel cargoes from Sikka, the Silver Valerie for Reliance and Eco Marina Del Rey for Vitol, had diesel as the cargoes, with Argentina options.
European market participants have cited Latin America as a potential outlet for Russian ULSD cargoes, as pressure mounts on European leaders to fully sanction import of Russian molecules to the Continent before year-end.
Interim EU sanctions on delivering Russian origin oil produced by certain entities, notably Russian giants Rosneft and Gazpromneft, to outside the EU does, however, provide some barriers to a greater potential Russia-Latin America flow.
Nevertheless, European traders continue to remark that the arbitrage to send European barrels from the ARA hub to strong pricing centers in Latin America was viable, despite Europe's supply being tight.
A fourth Latin trader said flows were certainly heading from Europe to Latin America again.