Analysis: US Gulf Coast diesel flows to Europe hit record high in July, with more set for August

Diesel flows from the US Gulf Coast to Northwest Europe and the Mediterranean have been increasing as the summer draws to a close, with July volumes hitting a record monthly high and August on track to beat it, according to S&P Global Commodities at Sea data.

Multiple factors are driving the record volume across the Atlantic including low clean tanker freight rates, depressed Gulf Coast diesel prices due to high inventories and run rates in the US, and limited arbitrage opportunities in the US.

Refiners sent 11.2 million barrels of diesel and gasoil across the Atlantic in July. That beat the previous monthly high of 8.6 million barrels in December 2023, when the Gulf Coast diesel differential hit an all-time low, causing Colonial Pipeline to fully allocate and allowing exporters to maximize the arbitrage between US and European diesel prices.

If the trade continues to prove profitable through the second half of the month, August could break the record with a potential 13.75 million barrels moved to Northwest Europe and the Mediterranean. As of Aug. 13, CAS data shows 4.9 million barrels of diesel and gasoil already delivered in August and 29 vessels in transit carrying 8.85 million barrels.

“The volumes out of the US Gulf Coast are just massive,” said a US refined products trader.

Clean tanker freight rates swing all summer
One factor driving the volume increase has been freight-rate volatility. The 38 kt USGC-UK Continent clean tanker freight rate values have been extremely volatile over the past few months, beginning June at $57.99 per metric ton before cratering to $29.27/t by June 12. A few more swings followed in July before settling in August between $34.09/t and $30.30/t. As soon as freight rates came off, the arbitrage to move barrels became more profitable so charterers booked ships quickly, driving down available tonnage and causing the freight rates to spike.

“The arbitrage is purely a function of workable freight rates,” one distillates trader said.

US inventories rise and refinery run rates strong
Refinery utilization rates in the US have been strong this summer, averaging 93% since the week ended June 7, the most recent Energy Information Administration data shows. Gulf Coast refinery utilization has been particularly strong, averaging 94% in the same period as production in the region remains near its all-time high. US Gulf Coast production reached 2.995 million b/d in the week ended July 5, marking the highest level of production since the EIA began tracking the data in April 2004. As of Aug. 14, Gulf Coast production is 206,000 b/d below the July 5 high.

US diesel inventories have been elevated as well with a year-to-date average of 112.76 million barrels in 2024, compared to 105.13 million barrels in 2023 and 103.43 million barrels in 2022. The Gulf Coast year-to-date stock average is 36.81 million barrels compared to 34.39 million barrels in 2023 and 34.15 million barrels in 2022.

Opportunities limited in mainland US
Diesel prices across the US have been abnormally low, with prices sliding more aggressively in recent weeks. Platts assessed the benchmark Gulf Coast ULSD differential at an 11.40 cents/gal discount to NYMEX September ULSD futures on Aug. 9, the lowest level since Jan. 19, when it was 11.95 cents/gal discount.

Atlantic Coast diesel has also been weak, reaching a fresh two-year low on Aug. 13 at a 5 cents/gal discount to NYMEX September ULSD futures, the lowest level since March 30, 2022, when Platts assessed the differential at a 7.75 cents/gal discount.

Low prices in the Gulf and Atlantic Coast have made domestic arbitrage opportunities hard to come by.

Colonial shippers have reported about an 8 cents/gal tariff to move product from Houston to New York Harbor. The cost difference between the two regions is 4 cents/gal, considering a 9 cents/gal discount for Gulf Coast ULSD as of Aug. 13 and a 5 cents/gal discount for Atlantic Coast ULSD priced based on delivery at Colonial Pipeline at Linden, New Jersey. This indicates a shipper would lose 4 cents/gal for moving diesel up Colonial.

“The arbs up to New York on CPL just do not work right now,” said one Gulf Coast distillates trader.
Source: Platts