With no indications of the Houthi threat in the Red Sea subsiding, Indian refiners are diverting diesel shipments to Asia with loadings to Europe hitting rock bottom in January 2024.

As Indian and West Asian refiners are getting increasingly vary of transiting the Red Sea, which accounts for 8.5 million barrels per day (mb/d) of crude oil and refined products trade, to export diesel to Europe, cargoes from the US are bridging the supply gap, said Wood Mackenzie (WoodMac) in its latest report.

Trade sources also said that Europe diesel loadings from India slipped to their lowest levels in the last few years during January 2024. Refiners are turning towards Asia where unplanned refinery maintenance has opened up sale prospects. Domestic refiners are selling diesel in east Asia (Singapore region) including a few other countries in Asia.

According to energy intelligence firm Kpler, India shipped around 302,000 barrels per day (b/d) diesel last month, compared to almost 551,000 b/d in December 2023, declining by over 45 per cent. Cumulative shipments to the UK, plus 9 countries, including France, Netherlands and Spain, fell to 1,52,010 b/d from 4,25,193 b/d.

The Petroleum Planning and Analysis Cell (PPAC) pegs diesel exports to have declined by 29 per cent M-o-M in January.

Avoiding Red Sea

“European distillate imports become more costly as Middle East and West Coast India volumes travel further at elevated freight rates,” said the consultancy.

More than 50 per cent of the middle distillate flows to Europe have been diverted via the Cape of Good Hope (COGH) in January 2024 but total East-West flows drop sharply as Indian diesel loadings stall and pivot to Asia, awaiting re-basing of European prices, WoodMac said.

The consultancy assumes that the current West Asia conflict will remain contained between Israel and Hamas, with no major conflagration to the wider region. It also assumes that the war and Red Sea transit issues will continue until the end of Q3 2024, with vessels continuing to avoid the Red Sea through this period.

“Spiking freight rates and insurance premiums have forced Indian diesel loadings to Europe to fall to zero in the last weeks of January as refiners and traders weighed up the risk and longer sail time, opting instead to send barrels East. This will heavily impact arrival volumes into Europe in the next couple of months, while also weighing on Asian distillate balances,” WoodMac said.

Higher freight

Red Sea accounts for 5.5 mb/d, or 15 per cent of the total crude oil trade, while total refined petroleum product movements average at over 3 mb/d, which is also 15 per cent of the total refined product trade, said WoodMac.

“Despite US and UK strikes on Houthi targets, the disruption around the Bab el-Mandeb strait shows no sign of easing, with over 20 per cent of oil tanker trade now diverting around the COGH. This adds at least two weeks to voyage times, resulting in more tonne-mile demand, higher freight rates and increased product cracks,” it added.

Wood Mackenzie expects trade flows to shift, with more US distillates clearing to Europe, while Middle East products will redirect to the Americas and Asia.

The US EIA, in a February 1 report, said: “Major oil and natural gas companies that are avoiding the Red Sea include Equinor, which operates mostly natural gas carriers, and bp, which operates both oil and natural gas carriers. As of January 23, 2024, other major energy companies pausing Red Sea transits include Euronav, QatarEnergy, Torm, Shell, and Reliance.”

India Ratings & Research (Ind-Ra) in a February 9 report said the initial reaction can be seen in freight rates rising by 150 per cent in the past 45 days. The route constituted 40 per cent of the total oil imports and 24 per cent of total exports during April-October 2023.

About 20-25 per cent of India’s foreign trade logistics is through the Suez Canal, with key products such as crude oil, auto & auto ancillaries, chemicals, textiles and iron & steel being affected, it added.

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