India’s September-loading diesel exports to Europe hit a record high as traders took advantage of arbitrage profits to the West, while domestic demand remained low. This surge in export volume is unlikely to continue into October, according to analysts and traders. The boost in exports was driven by a seasonal lull in domestic demand and the opened arbitrage for India-origin cargoes heading West. Traders were potentially preparing for the loss of Russian diesel barrels to Turkey due to the export ban. Russia had banned diesel exports on September 21 to stabilise its domestic market, but partially lifted the ban from October 6.
The surge in India-origin diesel shipment to Europe will help the continent to build commercial stockpiles ahead of the winter heating season. This will ease supply shortage concerns and limit overall price gains. In addition, the westward pull for cargoes will support Asian refining cracks, mitigating a modest supply glut in the region.
Shiptracking data from Vortexa, Kpler, and LSEG showed that exports from India to Europe totalled between 280,000 and 303,000 barrels per day (bpd) in September, accounting for half of India’s total diesel exports for the month. Meanwhile, exports to Singapore fell by around 73% in September as sellers found it more profitable to ship cargoes to the West.
The east-west arbitrage, measured using the exchange of futures for swaps (EFS) price differential, averaged $76 a ton daily in the second half of September, according to LSEG data. India’s windfall export tax drop in September encouraged refiners to sell their cargoes outside the country. Cash premiums for India-origin exports also rose, with September cargoes commanding premiums of around $4 a barrel compared to August’s $2 to $3 premiums.
However, the arbitrage spreads have narrowed in the past week, indicating that the flows will slow in October. The EFS spreads have reduced by almost $20 a ton from a week earlier, according to LSEG data. October volumes heading to Europe from India are currently around a quarter of September levels, reaching 75,000 barrels per day, based on Kpler shiptracking data. Analysts from LSEG expect exports from India in October to remain thin due to ongoing refinery turnarounds and peak Diwali festive season demand.
Reporting by Trixie Yap in Singapore, additional reporting by Mohi Narayan in New Delhi and Ahmad Ghaddar in London; Editing by Tony Munroe and Sharon Singleton.
