Europe Has Become a 'Dumping Ground for Diesel'

  • Ship coming from Asia can haul about 80 million gallons
  • Cargo, possibly first of its kind, will add to regional glut

A supertanker is bringing millions of gallons of Asian-made diesel to Europe, threatening to strain the continent’s already brimming storage depots even further.

The Alice, able to ship about 80 million gallons, was booked to haul diesel on what traders refer to as an arbitrage route, Euronav NV, the carrier’s owner, said in January. That same ship is signaling Antwerp as its destination, tracking data show. The Belgian port is part of the continent’s key oil-trading hub.

“Europe has become a dumping ground for diesel,” Ehsan Ul-Haq, senior oil market analyst at KBC Energy Economics in Walton-on-Thames in England, said by phone. “We may run out of onshore capacity and these ships may become offshore storage tankers” if there are more charters of this kind.

Oil refineries ramped up processing of crude into products such as diesel last year because their single-biggest cost -- crude -- plunged in price. Now that’s created a surplus, estimated by the International Energy Agency at 87 million barrels in OECD Europe. Europe is a common destination for the fuel because its own refineries historically haven’t produced enough.

Not Needed

Oil traders typically think about the price of diesel relative to that of the crude from which it’s made and a glut of the processed fuel has driven down that premium. A barrel of gasoil, a near-identical product in Europe, costs $6.91 a barrel more than crude, according to ICE Futures Europe data. That’s the smallest premium for the time of year since at least 2009.

The Alice, built this year, is a very large crude carrier, meaning it is built to haul crude rather than diesel. Traders often use newly constructed crude transporters to haul refined petroleum for their first cargoes. Prior to heading to Antwerp, the ship went to a port in Malaysia. Vessels sometimes change their destinations mid route.

While Europe has a surplus, traders will often send spare diesel cargoes there anyway because the region’s demand will eventually absorb the fuel, according to Ul-Haq.

Independent traders currently have about 3.6 million tons of gasoil in storage tanks in Amsterdam, Rotterdam and Antwerp, the highest for the time of year since at least 2008.

If it does get shipped to Europe, the delivery would equate to two days of European imports, according to Steve Sawyer, an analyst at FGE in London.

“The last thing Europe needs right now is another 2 million barrels of distillate on its doorstep,” he said. “Distillate prices in Europe are set for a hard time this summer. They are already low and they could easily go lower.”

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