In September 2023, India witnessed a remarkable surge in its diesel exports to Europe, reaching their highest levels for the year. This surge was driven by a combination of factors, including reduced supplies from West Asia and the United States (US) due to the autumn refinery maintenance season and robust demand in Europe. Data from energy cargo tracker Vortexa sheds light on this significant development.
A Surge in Diesel Exports
India’s diesel exports to Europe in September reached approximately 333,000 barrels per day (bpd), marking a substantial increase of nearly 47 percent from August. This surge was even more impressive when compared to the same month the previous year, with a year-on-year increase of 57 percent, according to data provided by Vortexa.
Private Refiners Take the Lead
Among the notable insights from the data is that export-oriented private sector refiners played a pivotal role in this surge. Companies such as Reliance Industries Ltd (RIL) and Nayara Energy Ltd (NEL) accounted for the lion’s share of diesel exports to Europe in September.
East-West Diesel Arbitrage Opportunity
The East-West diesel arbitrage, which had been largely closed for several months, suddenly re-emerged as a lucrative opportunity. The primary drivers behind this resurgence were the constrained supplies from the Middle East and the US due to autumn refinery maintenance and robust demand in Europe. Serena Huang, Head of Asia-Pacific Analysis at Vortexa, emphasized these factors.
Strong Diesel Cracks and Profitability
Diesel cracks, or margins, in the international markets had been robust for several months due to supply constraints. Indian refiners had been exporting diesel to Asian hubs like Singapore due to lower freight costs compared to Europe. However, as the price difference between Asian and European diesel widened significantly, exports to Europe became more financially appealing.
India’s Growing Role in the Global Energy Market
India, as the world’s third-largest consumer of crude oil, has become a net exporter of petroleum products due to its substantial refining capacity, exceeding domestic demand. The country’s increased purchases of discounted Russian oil following the 2022 invasion of Ukraine have further elevated its role in the global crude oil and refined products supply landscape.
Despite the strong diesel market, India’s fuel exports may temporarily slow down due to maintenance shutdowns at various refineries, including units at RIL’s massive Jamnagar facility. Additionally, with the festival season from October to December driving up domestic fuel demand in India, refiners are likely to prioritize domestic consumption over exports.
Russia’s Impact on Diesel Imports
Russia, the world’s second-largest diesel exporter, imposed a temporary ban on diesel and petrol exports on September 21, 2023, in an effort to address fuel shortages within the country. While analysts expect this ban to be short-lived, its impact on European diesel cracks remains uncertain. The reduction in Russian diesel exports has disrupted the supply chain, potentially leading to shifts in diesel trade patterns.
As a result, countries like Turkey and Saudi Arabia, major buyers of Russian diesel, may be compelled to curtail exports to Europe. Moreover, the diversion of some diesel supplies from the US to Brazil, another significant consumer of Russian diesel, could further complicate the European diesel market.