Middle East diesel exporters to Europe still overwhelmed by US supplies

Middle East diesel producers seized on a slowdown in US exports to Europe for one week in September but remained overwhelmed by US supplies, according to the latest ship tracking data.

Diesel shipments from the Persian Gulf and the Red Sea to Europe rose to nearly 5 million barrels in the week starting Sept. 23, the highest since the week beginning July 8, according to S&P Global Commodities at Sea data. At the same time, US diesel exports fell to 4.2 million barrels, a three-week low. However, for all of September, US shipments averaged a record 593,000 b/d, while Middle East diesel exports dropped to 495,000 b/d in September from 499,000 b/d in August.

Middle East diesel shipments to Europe hit a three-month low in June as US supplies crowded out Saudi Arabia and the UAE. They have slowly recovered since then and are well above last year's low of 298,000 b/d in October. Europe's overall diesel imports in September averaged 2.8 million b/d in September, the most since at least October 2016, according to the shipping data.

“Europe needs to fill its tanks before winter, so a rebound in demand, along with heating requirements, leads to imports,” said Naing Oo, senior adviser for global oil analytics at S&P Global Commodity Insights. “Our Europe analysts expect gasoil/diesel demand to recover from last year’s low as inflation eases.” While lower interest rates should boost consumer spending, manufacturing in Europe remains slow, he added.

Middle East diesel production is crucial for Europe, as nearly 900,000 b/d of planned maintenance outages in Northwest Europe and the Mediterranean are expected through early October, according to a Sept. 30 Commodity Insights short-term outlook for Middle East refined products.

“Among all Middle Eastern countries, Oman is expected to experience the largest year-over-year gasoil production growth, with output rising 70,000 b/d year over year thanks to the Duqm refinery,” analysts said in the report. “With increased production capacity coming online in the Middle East this year, gasoil cracks remain relatively healthy, although they are not expected to reach the levels observed in the second half of 2023.”