European Diesel Refining Margins Sink on Huge Stocks

European diesel refining margins sunk on Tuesday to their lowest in over 5 years at $10 a barrel as brimming storage tanks and weak seasonal demand weighed, Reuters data showed.

 

Europe has absorbed growing volumes of diesel exported from huge, modern refineries in Asia and the Middle East, and from Russia and the U.S. Gulf Coast in recent months. September imports exceeded 5 million tonnes, creating a surplus of more than 500,000 tonnes, according to traders.

 

October imports were expected to be lower but to still outstrip demand, traders said.

 

Land storage levels in the Amsterdam-Rotterdam-Antwerp hub, were around 70 percent, near the maximum techical capacity, according to traders.

 

As a result, traders looked at storing diesel on large tankers.

 

The diesel barge refining margins in northwest Europe dropped to $10.09 a barrel, the lowest level since March 2010, after barge differentials to the November diesel futures dropped in afternoon trade.

 

The front month discount of the Low Sulphur Gasoil futures to the December contract, known as contango, widened sharply to around $7.25 a tonne following the expiry of the October futures on Monday, further supporting floating storage economics, traders said.

 

Extremely low water levels along the Rhine river have restricted barge traffic along the artery into inland European markets in recent weeks, compounding pressure on the Amsterdam-Rotterdam-Antwerp (ARA) storage hub.

 

"Stocks are just accumulating in ARA," said Oliver Jakob, analyst at Zug, Switzerland consultancy Petromatrix.

 

"The picture is not good for distillates, we need some winter demand to kick in but we also need some improvement in the water levels."

 

Refiners around the world enjoyed a rarely seen run of strong profit margins over the past year as the halving of oil prices sparked demand for oil products around the world.

 

Margins have nevertheless narrowed sharply following the end of the peak summer demand.


(By Ron Bousso; Editing by William Hardy)