Bullishness possible for USGC-Brazil clean tankers in absence of Russian diesel cargoes

Russia’s week-old ban on diesel and gasoline exports may prove short-lived, but it is causing ripples in tanker markets, with a perceptible uptick in the fixing of diesel cargoes from the US Gulf Coast to Brazil.

Since the Sept. 21 export ban, market sources have reported to S&P Global Commodity Insights one MR and two LR1 fixtures for the USGC to Brazil, compared with one LR1 fixture each in August, July and June.

The LR1 market has met renewed interest on the USGC-Brazil run. Platts assessed rates on the 60,000 mt USGC-Brazil run w15 higher on the day at w167.5 and the UK Continent and the Mediterranean run w32.5 higher on the day, to w147.5, on Sept. 26. Platts is part of S&P Global.

Russian gasoil and diesel exports have steadily come down in recent weeks, shrinking 270,000 b/d on the month in September, due in part to Russian refinery turnarounds. Exports also typically fall in October due to the harvest season, according to S&P Global analysts. The demand for diesel by Russia’s military needs in Ukraine is unclear.

Brazil had been the main importer of Russian diesel since the EU’s ban of the country’s oil products following its February 2022 invasion of Ukraine, with exports now going to South America and other farther-flung regions. Brazil has taken more diesel from the US in September — 20,000 b/d higher on the month — as Russian exports to the country fell 30,000 b/d on the month, according to S&P Global data.

The analysts expect Russia’s export ban to only last a few weeks due to limited storage capacity. If it were to persist, it would likely lead to lower domestic runs, which would exacerbate domestic gasoline shortages, they said.

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Brazil’s Petrobras has not been importing Russian refined products due to its listing on the New York Stock Exchange, which requires the company follow US sanctions. But distributors bringing diesel into Brazil and not listed on the NYSE — Ipiranga, Raizen, Trafigura and Vibra — and which had continued to import Russian products, are now returning to the USGC for product.

The G7 and EU imposed a set of price caps earlier this year, which means that anyone importing Russian barrels cannot use G7 or European financial services such as insurance if they are carrying Russian crude worth more than $60/b, premium products such as diesel above $100/b and other products such as fuel oil above $45/b. Oil prices have been pushing past these levels since around early July.

“Crop season is just in front of us and we’ll get a much better picture on whether imports of diesel from the USGC will work under the domestic price cap,” a major Brazilian diesel importer said. “The industry will buy where the cheapest barrel is.”

Alternative diesel supplies could also be sourced from India usually in LR 1 and 2 tankers of 60,000 mt and 80,000 mt lots.

European maintenance possibly delayed

“While the additional impact on product tankers from the [export ban] is mixed, with short-term risks skewed to the upside for MRs in the Atlantic, short-term implications for crude tankers in the Med also appear positive,” shipbrokers BRS said in a research note Sept. 25.

The development could incentivize more long-haul shipments from Asia to Europe, amid re-stocking in Europe, BRS said.

European and Mediterranean refineries could potentially defer part of their planned maintenance and compete for Middle Eastern crude supplies, simultaneously with Asia. Current supply dynamics, driven by medium sour crude supply tightness, imply that it is difficult for simple refineries in Europe to take advantage of the high ULSD cracks due to the constraints in the appropriate crude slate, BRS said.

“While we continue to support this view, a short-term increase in demand for crude oil imports in the Med bidding up for Middle Eastern crude could see a sharp rally in related dirty indices,” BRS said.

An additional element is that a number of Japanese refineries are going into maintenance in September and October and Russia’s export ban could “play havoc” with regional inventories, shipbrokers Gibson said Sept. 22.

“However, much depends on the volume of Chinese product exports,” Gibson said. The Chinese government has recently released a third batch of product exports, bringing 2023 total for the year to date some 15% above last year’s clean products’ total volume, it noted.
Source:Platts