The surge in middle distillate seaborne exports from the Wider Arabian Sea, a key trend shaping the global product market since 2024, has significantly influenced refining margins across both the Atlantic and Pacific Basins, Vortexa said.
Cracks in the middle distillates market have remained resilient throughout the summer, despite a subdued global demand outlook.
Strong import flows into Northwest Europe and the Mediterranean are providing support, maintaining robust margins even with weak fundamental demand, the shiptracking agency said in a report.
Source: Vortexa
Arabian sea exports squeeze margins
So far this year, Wider Arabian Sea (WArS) middle distillates exports have surged to seasonal monthly peaks three times.
Over the first five months, global markets received an average of 2.9 million barrels per day from these exports, marking a 5% year-over-year increase, as per Vortexa data.
As summer approaches, Asia-Pacific’s import demand weakens, as detailed previously.
Consequently, Pacific Basin middle distillate imports decreased by 5% year-over-year in May, the data showed.
“Surplus volumes coming from India West Coast and the Middle East Gulf are nevertheless being absorbed by demand pockets in Europe, keeping cracks firm despite poor end-use forecasts,” Mick Strautmann, market analyst at Vortexa, said in the report.
European import demand
This year, European refineries experienced an extended period of maintenance and shutdowns, exacerbated by unexpected disruptions.
May saw Mediterranean middle distillate imports surge to a record 1.9 million barrels per day, exceeding the ten-year seasonal peak for the third straight month, Vortexa data showed.
Spain and Italy have received 23% of these Q2 imports, according to the data. Notably, Spain’s diesel/gasoil imports reached a high of 217,000 barrels per day in April, a 65% month-over-month increase.
Recent disruptions at the Bilbao refinery have led to decreased domestic supply, subsequently increasing the need to import surplus Wider Arabian Sea crude oil, Strautmann said.
Source: Vortexa
Reduced Northwest Europe refinery output from maintenance drove local distributors to Amsterdam-Rotterdam-Antwerp (ARA) stocks.
With May ARA gasoil levels at a 15-month low and ongoing major refinery outages, Northwest Europe buyers seek increased diesel imports, according to Vortexa.
Jet fuel and kerosene provide support
“Despite disappointing diesel demand, jet/kero seems to be supporting middle distillates going into the summer,” Strautmann added.
Due to an optimistic forecast for summer air travel, jet fuel inventories are quickly increasing in the ARA region, according to Vortexa.
Consequently, imports of jet/kero from outside regions to Northwest Europe and the Mediterranean saw a significant 34% month-over-month surge in May.
Globally, refineries have maximised jet fuel production.
Despite this, jet fuel reclassification rates have stagnated month-over-month. This stagnation limits refiner profitability, particularly given Europe’s increased reliance on external jet fuel supplies.
Source: Vortexa
“Looking forward, it will be particularly important to watch the middle distillate flows out of the Wider Arabian Sea to forecast the impact they could have on refinery margins in the Atlantic and/or Pacific Basins,” Strautmann noted
Due to lack of supplies domestically, any impending Middle East refinery maintenance or increased transits via the Red Sea could have an outsized impact on margins.
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