The European diesel arb quickly reopens

ICE Brent crude price climbed above 76 $/b on early Monday, as European diesel margins recovered partially, to reach 13 $/b at the prompt, despite steady diesel cargoes volumes from Russia (410 kt) and from East of Suez (610 kt) this week, which shows how expensive it is for European refiners to run their hydrocracker units due to natural gas costs. It appears that a more cost-effective solution for European refiners remains to import distillate products while exporting gasoline surpluses to North America.

In the US, the SPR release is not meeting the success previously anticipated, as less than half of the 50 mb provided have been awarded to refiners and shippers. Indeed, the market discounts the price of SPR barrels, as the unknown quality and potentially toxic contents are a deterrent for refiners to run this crude in their refining kit. Secondly, with the collapse in the market’s backwardation, incentives for playing the curve – by selling the US SPR crude now and buying it back later – are now gone, leaving the market uninterested in this SPR sale/swap program. SPR releases by other countries are even hazier, with little details emerging from the Japanese, Korean and Chinese SPR sales.