• 2025年1月23日
  • Market: Oil Products, Road Fuels

Listen to our three-part podcast series looking into the outlook of the European diesel market in 2025.

In this part two, our market experts - Benedict George (Deputy Editor - European Products) and George Maher-Bonnett (Market Reporter – European Products) - discuss what the landscape for diesel import supply in Europe is likely to look like:

  • A rundown of the impact Russian sanctions have had on shifting diesel trade flows across the globe
  • With the inflow of excess US diesel, following US' lose of it's Brazilian export market to Russia, how much pressure will that put on European diesel prices?
  • The role the Dangote refinery could play in transforming the European diesel market
  • And much more

Related Podcasts

Listen to Part One of the podcast series here.

Listen to Part Three of the podcast series here.

Transcripts

Benedict: Hello, and welcome to part two of a three-part podcast series created by the Argus European Products team. The series is about the outlook for the European diesel market in 2025. And in part one, we dealt with the domestic demand for diesel within Europe, and in part two we're going to deal with the prospects for European diesel import supply, so the prospects for global diesel supply insofar as it's available, accessible to Europe.

My name is Benedict George. I'm the deputy editor of the Argus European Products Report. And I'm joined on the podcast today by George Maher-Bonnett, our diesel market reporter in Europe. Thank you for joining us, George.

George: Thanks, Benedict.

Benedict: Import supply turned out unexpectedly comfortable I think in 2024, because, to recap, for the benefit of those who weren't glued to this market throughout the year, Russian diesel pretty much completely captured the Brazilian import market from the beginning of 2024.

In 2023, Russian and U.S. diesel kind of shared the Brazilian market, but in 2024, it was all Russian, more or less. So there was a lot of U.S. diesel that couldn't compete with that Russian diesel in price in Brazil, and this U.S. diesel needed to find somewhere else to go, and where it went was Europe. So European diesel imports from the U.S. increased hugely in 2024, and that was a real pressure on European diesel prices.

And at the same time, we had Chinese diesel demand performing very poorly in 2024. Famously, the Chinese construction industry has hit a real slowdown, and in some months of 2024, China was actually consuming less diesel than it was the previous year. So it wasn't only growing less strongly than it has been, but actually contracting in terms of diesel demand year-on-year. And this meant that the Asian market was that much better supplied. Asian diesel prices were that much lower, and that meant that more Middle Eastern and Indian diesel came to Europe in 2024. So import supply was pretty comfortable.

So, George, would you agree that European diesel imports are probably going to remain fairly comfortably available in 2025?

George: Yes. Yeah, I agree, Benedict. So essentially, Russian product is ending up in the markets which would otherwise have distracted our new suppliers and kept their products local to their regions, right? So Russian diesel, gas oil exports continue to land in the likes of Turkey and Brazil.

Brazil is key here, right? So essentially, we have secured a flow of pretty arbitrage-dependent but nevertheless available diesel cargos from the U.S. Gulf Coast. So the U.S. has emerged as one of the great suppliers of diesel to the European continent, many thanks to, I suppose, the pivot away from South America, which has become more of a captive Russian market.

So whereas South America would be able to secure heavily discounted Russian diesel and other refined products, the U.S. can't compete on that basis, right? Equally, Saudi Arabia has and will likely continue to benefit from its proximity to the European market, okay? Saudi Arabia is kind of Mediterranean adjacent, especially its western coast, where its key export refinery of YASREF is located. And Saudi Arabia is kind of jostled for top position as Europe's primary diesel supplier outside of the continent. And yeah, I don't see any reason why Saudi would not continue to occupy that space.

There are not many other likely suppliers which are going to emerge from many other nations around the world. Having said that, a lot remains to be seen on the role that the Dangote Refinery will play in how it transforms the European diesel market, but also the wider Atlantic basin market, where, of course, Latin America and the U.S. are principally involved as kind of actors as well.

So at the Dangote Refinery, we are seeing quite a steady flow of product being loaded either for domestic consumption, mostly in the form of gasoline, but also across the barrel, whether it be for fuel oil and notably gas oil, right? So on the gas oil front, we are yet to see much buying interest in Europe, but this could ultimately change. A lot of this is down to the specifications of the gas oil which is coming out of the refinery, which is currently not matching European spec. It's notably 50 ppm, or low sulfur diesel, gas oil range of 10 to 50 ppm sulfur content, but we're not yet seeing a consistently ultra-low sulfur specification coming out of Dangote, which is 10 ppm.

And at that point, which that kind of threshold is met, then we could ultimately see a new flow entering Europe, which would actually weigh further on outright values if the lay of the land remains as it is in terms of domestic European refineries. It could indeed, yeah, weigh on outright values and refining margins for the remaining European refiners further.

Benedict: Absolutely. Yeah. And I think the important thing that we should remember about Dangote while we're on it is that while there's a lot of uncertainty about whether Dangote ramps up towards its full nameplate capacity, which would be 650,000 barrels a day, it doesn't have to get anywhere near that to be a very big refinery. It can operate at... You know, if it operates at two-thirds capacity, it's still on a level with the largest refinery in Europe.

At the time of recording, the Dangote Refinery is running around 50, a little bit less than 50, sometimes a little bit more than 50 sometimes percent of its nameplate capacity. The refinery itself says that it's running near full capacity, but the actual volume of crude that can be tracked arriving at the refinery by sea shows that the volumes, the physical volumes only match up to closer to a half, sometimes two-thirds of its capacity. And still, that would be one of the biggest refineries in Europe if it was running at that rate in Europe.

So it's less... You know, we shouldn't get caught thinking in extremes like it's either running at full capacity or it doesn't matter. It can be running at low rates and still matter a lot. And that's probably what we're seeing at the moment, what we will keep seeing in 2025.

And the other thing that can happen in 2025, right, is that the Houthis may not be blocking shipping through the Bab al-Mandab Strait at the bottom of the Red Sea anymore. And they can't... This is just a possibility, right? I'm not necessarily saying that the Houthis are probably going to stop. I'm just saying it's a possibility that they would stop attacking shipping in the Bab al-Mandab Strait.

And then if they did, shipping from the Mid-East Gulf or from India into Europe, shipments of diesel, that is, would become suddenly a lot cheaper. They would take much less time at sea and they would cost... The freight component of that trade would suddenly become a lot cheaper. The Houthis can't block the sea any more than they are now. But there is a possibility that it will become easier to transit that strait.

There's also a possibility I think that more diesel comes out of Russia next year. So apart from capturing the Brazilian market, as the Russian diesel already has, there could be even more Russian diesel taking more of the U.S. market in Latin America away and pushing more of that U.S. diesel into Europe. There could be more Russian diesel going into Turkey and liberating more of the Turkish diesel production to load the European destinations.

Russia has brought a lot of diesel production capacity online over the last four years or so. I think I'm right in saying four or five refineries in Russia have started up hydrocracker units and other upgrading units that tend to increase the refinery yield of diesel. And that's why we saw rapid year-on-year growth in diesel exports out of Russia, right up until 2022, sorry, until 2023. So even after the EU had banned importing diesel from Russia, Russian diesel exports overall actually kept on growing year-on-year. They just went to different destinations, but they kept on growing because the country was producing so much diesel.

And then in 2024, just this year, the Russian diesel exports overall slowed down for various reasons, which we don't want to speak too speculatively about, but it is possible that part of the reason for that was the campaign of drone strikes carried out by the Ukrainian military against Russian refineries. Some of those refineries had to shut down because of drone strikes. Stayed offline for weeks or even months in some cases. In some cases, they subsequently shut down again later in the year. And it was unclear to observers I think how easily those refineries had managed to repair the damage because, in some cases, there were, as I say, long or intermittently repeated outages. So in any case, Russian diesel exports actually fell year-on-year in 2024.

Now, there are two ways that could go in 2025. The campaign of drone strikes against Russian refineries could ramp up and even take more Russian capacity offline, or it could peter out, or the Russian refining system could become more resilient and they might repair the damage more quickly, effectively. So that could go in either direction.

If the Russian refining system manages to operate at a more consistent rate in 2025, then there would potentially be an indirect knock-on effect on European markets where Europe would probably receive more U.S. and Turkish diesel. And that would be another pressure on European prices going into 2025.

Now, we've said a lot about the ease of import supply in 2024 and the likelihood that that will continue in 2025, but we should say something about the risks. Not every channel of European diesel import supply is equally assured for 2025. If the Chinese massive stimulus that the Chinese government has released in the last month or two, if that successfully revitalizes the construction industry...

George: I can comment on that.

Benedict: Okay, go for it.

George: Yeah, yeah. Could well be a possibility that Chinese demand rebounds through, you know, stimulus or whichever means. You know, is that likely amid a potential trade war with the incoming Trump administration? Who knows?

Benedict: That's the point.

George: But we're also seeing the closure of so-called teapot refineries across China as well. So these tend to be kind of independently owned small-scale refineries. So a Chinese trader was telling me last week that they continue to be shutting down. And yet, you know, amid a kind of quite meager economic demand domestically, refiners are having to shut down in the case of the teapot refineries. But they're also having to stockpile a lot of their products as well because the way that, well, Chinese market works is that a lot of refiners have to wait for the queue given by Beijing to export a set volume of be it diesel, gasoline, or jet fuel, okay?

So there is a lot of product which is also being held back in China, which could well be released as it was, well, around two years ago now. We had a kind of exceptional wave of Chinese products arrive in Europe. And that could actually have the opposite effect, whereby, you know, a kind of auxiliary supply, exceptional wave of supply coming in from China could actually weigh on outright values as the supply is just excess to demand, essentially.

Benedict: That's very true. What we have seen for the last two years, really, since 2023, is this change in the structure of the European diesel trade, where Europe, almost all of Europe has shut out Russian diesel and instead has leaned more heavily on U.S. diesel and on Mid-East Gulf diesel and on Indian diesel.

And particularly the diesel that comes from the Eastern suppliers is coming on larger vessels that can't fit into every port in Europe and, in many cases, need to discharge parcels or need to discharge into a hub like the Amsterdam, Rotterdam, Antwerp area and then that diesel needs to be reloaded onto smaller ships to go into some of the ports that just don't have the physical capacity to process the larger ships. And that, we see continuing in 2025, just as it has done this year.

And what Argus has provided is an online platform where the smaller ships loading from the Amsterdam, Rotterdam, Antwerp hub can be bid and offered in a public platform where trades can be...you know, buyers and sellers can connect and then agree a trade. And there's activity in that platform, I'm glad to say. Just in recent weeks, there have been regular... I think more days than not, there have been public bids in that screen for 10,000 to 15,000-ton cargoes loading from Amsterdam, Rotterdam, Antwerp.

And we hear a lot of interest in this platform from other traders as well and we're hoping and we believe that platform is useful for the market. And that's what we hear from traders and we hope that that will be used more in 2025.

So if you're listening to this and you think that that platform could be useful for you or if you want to be able to watch that platform, even if you're not ready to actually participate in it but you want to watch it and be aware of what's happening in it, do get in touch with us and we can set up your access to that screen. If you already subscribed, then there's no extra fee for viewing the screen. So do get in touch.

Thank you so much for joining us, George, and thank you to everyone listening for taking the time. And in summary, I suppose we can say that while there are risks on the import supply front, there are risks in global diesel supply, overall, diesel import supply in Europe in 2025 probably be relatively easy as it has been in 2024.

Thanks so much to everyone for listening. This has been the second part of a three-part podcast series about the outlook for the European diesel market in 2025. You will also be able to find online part one, which was about the prospects for European diesel demand. And you'll be able to find part three about the prospects for European domestic refinery production in 2025. So keep an eye out for those as well if you're interested.