- Middle Eastern diesel supplies have pivoted to Asia due to higher seasonal demand, while Europe sources more diesel from the US Gulf Coast (USGC).
- Reduced ULSD spreads between Northwest Europe (NWE) and the Middle East Gulf (MEG) have curtailed East-to-West diesel flows, tightening supplies in Asia.
- Seasonal heating and travel demand in Asia has driven record jet fuel imports, impacting diesel production and altering global trade flows.
Global diesel supply chains are undergoing significant realignments as Middle Eastern producers shift exports to Asia in response to heightened seasonal demand. Concurrently, Europe has turned to the USGC for diesel, driven by changes in freight economics and refining dynamics. This reshuffling illustrates the intricate interdependence of global oil markets and highlights how regional demand and trade policies shape supply routes, reports Breakwave Advisors.
USGC Exports Fill Europe’s Diesel Gap
Diesel exports from the US Gulf Coast to Europe rose sharply in the third and fourth quarters of 2024 due to declining domestic demand and high refinery utilization.
Europe has increasingly favored short-haul diesel imports, reducing reliance on Middle Eastern and Asian supplies.
Middle East Diesel Reoriented to Asia
Middle Eastern diesel exports to Asia reached a 19-month high in December, driven by increased seasonal demand for heating and travel.
Simultaneously, Europe’s imports from the Middle East and Asia dropped, with Asian diesel flows rebounding to their 8-year average due to supply constraints and reduced exports from China.
Jet Fuel Demand Tightens Diesel Supplies in Asia
A surge in jet fuel demand in Northeast Asia has led refiners to prioritize kerosene production over diesel.
This shift, coupled with tighter Asian diesel supplies, has redirected Middle Eastern diesel barrels eastward to meet demand.
VLCC Dirty-to-Clean Switches Limited
Lower MEG-to-Europe diesel flows have reduced clean petroleum product (CPP) deliveries via VLCCs.
The reliance on shorter routes and smaller vessels limits dirty-to-clean switches on large tankers, affecting global freight dynamics.
Market Outlook and Future Trends
The reallocation of middle distillates to Asia underscores the flexibility of global markets but raises questions about the sustainability of East-of-Suez demand and high US diesel exports.
Historical trade patterns suggest Middle Eastern and Indian diesel flows could pivot back to Europe shortly.
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Source: Breakwave Advisors
