USGC distillate arbitrage to Europe shows promise with lower freight


As Europe and the US come out of coronavirus stay-home orders and petroleum product demand ramps up again, the ULSD arbitrage from the US Gulf Coast to Northwest Europe and the Mediterranean shows signs of reopening after clean tanker freight dropped to year-to-date lows in June.

On June 18, S&P Global Platts assessed the USGC-Med clean tanker route for a 38,000 mt vessel at Worldscale 60 or $13.69/mt, down w10 from June 17, the lowest level since June 12, 2019, when the route was assessed at $13.63/mt.

Freight for clean Medium Range tankers fell in June due to a lack of export activity out of the USGC as petroleum product demand remained diminished in Mexico, Latin America and South America due to stay-at-home orders. The ULSD arbitrage from the USGC to Europe reopened slightly in early June, though inquiry for spot tankers to make the trans-Atlantic voyage remained low in the first decade of June. With exports low out of the USGC, MRs piled up in the region, depressing freight.
Mediterranean demand opens arbitrage possibility

With clean tanker freight rates said to be dropping USGC-loading routes, one trader said that the area now seems be supplying more distillates, ULSD in particular, into the Mediterranean region.

“Gulf Coast is supplying you guys [in Europe] now,” the trader said June 17. “Heard some of the Med refiners not turning on with very poor margins. And freight is really low so it pays to send from USGC to Med and Brazil. Its breakeven to Med right now and I’m thinking that will get wider,” he said.

The market source, a US-based trader with knowledge of the trans-Atlantic arbitrage, also said that market fundamentals in the US are also supporting the flow of ULSD barrels out of the country.

“Yesterday EIA data showed a weekly draw in middle distillates,” he said. “With prices in Med creeping up, PADD I is exporting, and demand is coming back here in the US.”

Platts Analytics reported the ULSD arbitrage from the USGC to Northwest Europe barely closed, trading at a negative 33 cents/b on June 17. On the same day, the ULSD arbitrage to the Mediterranean was also reported closed, trading at 39 cents/b.

Atlantic ULSD exports to Europe have surged in June, rising to over a two-year high, according to data from Kpler vessel tracking software. Three tankers have carried diesel from the Atlantic Coast to Europe in June, totaling 1.09 million barrels, Kpler data showed. Monthly diesel export totals to Europe out of the Atlantic Coast were last seen higher in April of 2018, when 1.22 million barrels were exported, the data showed.

The rise in trans-Atlantic diesel exports on the US East Coast come as ULSD stocks reached a record high during the week that ended June 15, US Energy Information Administration data released on June 17 showed. Regional diesel stocks saw a 334,000-barrel build to 60.40 million barrels during the week that ended June 12, EIA data showed. This is the highest that stocks have been on the Atlantic Coast since the EIA began recording the data during the week that ended April 9, 2004.

Not only have stocks reached a new record high, they have seen builds for 11 consecutive weeks, nearly doubling since the week that ended April 3, the data showed.

Despite continued builds, Atlantic Coast diesel markets have risen alongside the Gulf Coast market as of late, with offline ULSD hitting a near seven-week high on June 16. On that day, Platts assessed the market at the NYMEX July ULSD futures contract plus 1 cent/gal. The market was last seen this high on April 29 and last seen higher on March 17 at prompt-month futures plus 1.10 cents/gal.

Platts assessed ULSD off the Colonial Pipeline at July futures plus 65 points/gal on June 18.
Tanker earnings fall to breakeven, owners could sit activity out

Americas shipping sources saw spot activity on the USAC pick up the week of June 14, though with the arbitrage bobbing over and under breakeven levels inquiry for tankers has been limited.

On June 17 two MRs were reported on subjects out of the USAC for June 18-20 laycans with discharge options in Europe and Brazil, however both failed on subjects later the same afternoon due to the arbitrage not working at the agreed freight level.

A second shipbroker said that, should freight fall further on the trans-Atlantic routes, daily earnings for shipowners would fall at or below breakeven, which would deter owners from taking trans-Atlantic cargoes.

“We’re getting dangerously close to operating expenses,” he said. “If you’re making $3,000 a day you shouldn’t be doing the voyage, you should realistically be sitting because it’s cheaper.”
Source: Platts





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