India’s Diesel Exports to Europe Plummet to Two-Year Low Amidst Red Sea Security Concerns

India is set to register a record-low export of low-sulphur diesel to Europe this month, marking a sharp 80% decline in volumes compared to the previous month. The slump is attributed to heightened security risks in the Red Sea, resulting in soaring freight costs that have prompted Indian sellers to explore alternative markets in Asia. This development is anticipated to tighten diesel supplies in Europe, coinciding with the commencement of global refinery maintenance season.

Freight rates on the Asia-Europe route have surged over 30% in the past week, incorporating a war risk premium due to disruptions in the Red Sea. With Europe’s major refineries, such as Shell’s Pernis plant and ExxonMobil’s Rotterdam facility, undergoing maintenance until mid-April, market analysts predict an increasing strain on supply.

Sparta Commodities notes that elevated freight rates are impeding the opening of an arbitrage from the U.S. Gulf Coast to Europe, further contributing to the tightening of the diesel market. The impact is reflected in the widening spread between European low-sulphur gasoil futures contracts, indicating expectations of supply tightness.

While India-origin diesel faces challenges, the export of aviation fuel remains steady, buoyed by an open arbitrage window and stable demand. Despite the disruptions, a substantial volume of jet fuel is expected to reach Europe in January.

This downturn in diesel exports underscores the complex interplay of geopolitical factors, security risks, and maintenance schedules affecting global energy markets.