India on track to export record-low diesel to Europe in January as Red Sea risks drive up freight costs
The Hindu
India's low-sulphur diesel exports to Europe hit a two-year low due to high freight costs and Red Sea security risks.
India's exports of low-sulphur diesel to Europe are poised to hit a two-year low in January, after an unprecedented high last month, as Red Sea security risks drive up freight costs, trade sources and analysts say.
Volumes have so far declined by roughly 80% month-on-month to 33,400-58,000 barrels per day (bpd), Kpler, LSEG and Vortexa ship tracking data showed.
Persistently high freight costs would be likely to prompt sellers of India-origin cargoes to look for buyers in Asia, which would tighten supplies into Europe even further ahead of refinery maintenance season, traders and analysts say.
Freight rates on the Asia-Europe route have gained more than 30% in the past week to factor in the war risk premium. "Disruptions in the Red Sea coincide with the start of global refining maintenance season, with U.S. outages projected to peak in February and European overhauls around March," analysts at shipbrokers Gibson wrote.
Europe's largest oil refinery - Shell's Pernis plant in the Netherlands - has begun maintenance that will take half its 4,00,000 bpd capacity offline until mid-April. ExxonMobil is also shutting its 1,91,000 bpd Rotterdam refinery for maintenance from mid-February to late April.
The spread between the two front-month European ICE low-sulphur gasoil futures contracts surged to $23 a ton in backwardation on January 29, the highest since mid-December, indicating market expectations of supply tightness.
Analysts at Sparta Commodities said that high freight rates were hindering the opening of an arbitrage from the U.S. Gulf Coast to Europe, an important route for supplying Europe after Asia Pacific and West Asia. "The gains witnessed in ICE GO (gasoil) cracks and spreads show resilience and are poised to continue their rise, at least in the short term," Sparta said.