The stream of distillate cargoes from the U.S. Gulf Coast to Northwest Europe and the Mediterranean has all but halted in the last eight days as tropical storm Harvey forced the closure of terminals, ports and refineries in addition to disrupting market flows.
Only one vessel was seen to leave the USGC to land across the Atlantic in the last eight days, according to data from S&P Global Platts trade flow software cFlow.
The Medium range tanker Isola Blu is en route to Amsterdam. However, it may not end up there as cargoes are likely to be diverted to Latin America given the disruption. Cargoes frequently get bought and sold after loading and some are diverted in order to fill unexpected shorts.
The Overseas Milos is now just outside of Curacao off the coast of Venezuela having previously been on course to Le Havre in France.
Total arrivals from the USGC are now only at 320,000 mt, which has caused the ICE low sulfur gasoil futures spread to move definitively into a backwardation of around 75 cents/mt Tuesday after being mostly flat Friday, according to ICE data.
The break in supply is likely to support the NWE and Mediterranean diesel markets. However, given the disruption, there was talk of a possible reverse arbitrage from Europe to the U.S. emerging, according to sources, but so far there was scant evidence of this.
The possibility of Europe supplying Latin America is perhaps the more likely outcome initially, but so far market participants were holding off for the further clarification on the situation in the U.S.
"People are starting to sniff for Latam, but nothing has been really done. Everyone is waiting for the U.S. to open it seems," a source said.
While any reverse arbitrage on diesel would only be at an embryonic phase, for its distillate cousin jet things are looking more clear cut.
A number of cargoes originally destined for Northwest Europe were diverting across the ocean to meet demand for jet fuel in North and central America.
Although volumes lost to Europe were not great, in a low stock environment, European traders said even 200,000 mt would affect prices in the region.
The BW Kallang, originally fixed for delivery of jet from Vadinar, India, into Northwest Europe, had diverted to New York, according to S&P Global Platts trade flow software cFlow.