Europe wants the diesel that the U.S. is lacking buyers for

Jeffrey Bair

Cash diesel differentials across the U.S. Midwest have slid below the seasonal five-year average, prompting distillates producers to look toward Europe in search of value.

Diesel prices in Europe have been increasing and producers are betting the trend will continue and the Atlantic arbitrage will work in their favor. The price of ultra low-sulfur diesel in the Gulf Coast and Midwest ranged from about $1.80-$1.82 per gallon Wednesday afternoon, close to the same value of Northwest Europe cargoes, data compiled by Bloomberg show.

The freight for the 16-day trip for a full diesel cargo from Houston to Europe was at about 6 cents per gallon Wednesday, according to shipping data company Kpler. The Northwest Europe cargo price traded at $570.63 per metric ton ($1.81 per gallon) Tuesday, up from $541.88 on Aug. 7.

"The rising price in Europe has started to peel off some barrels that might have gone to Latin America and the Midwest otherwise," said Robert Campbell, head of oil products research for Energy Aspects Ltd. in New York.

Chicago pipeline ULSD fell 1.25 cents Tuesday night to NYMEX September ULSD minus 6.75 cents per gallon, almost a four-week low, and then rose 0.50 cents to minus 6.25 cents per gallon early Wednesday afternoon, according to data from Danaher Oil.

Differentials for pipeline diesel at Chicago and Tulsa, Oklahoma – which feeds Chicago by pipeline – have been trading at seasonal lows due to elevated diesel stockpile levels in the Midwest following slow corn planting earlier this spring.

Refined products ships signaling off the Gulf Coast Wednesday for Rotterdam or Amsterdam, a route dominated by the diesel trade, included the Marlin Ametrine from Lake Charles, Louisiana, the Gulf Mews from Corpus Christi, Texas, and the Electa from Baytown, Texas, according to data compiled by Bloomberg.

With assistance from Jack Wittels.