Asia’s diesel shipments to Africa are on course to reach their highest level in at least four-and-a-half years in August, as African buyers increasingly turn east to compensate for declining supplies from the Middle East.
Shipments from Asia, including India, are expected to total between 1.8 million and 2 million metric tonnes, equivalent to roughly 13.4 million to 14.9 million barrels, during August. The shift comes as disruptions linked to the US-Iran war and security risks along key Middle Eastern shipping routes constrain traditional supplies to Africa.
Middle East Shipments Fall To Nine-Year Low
Middle Eastern diesel exports to Africa are estimated at just 600,000 to 800,000 tonnes in August, their lowest level in nearly nine years. Persistent risks around both the Bab el-Mandeb and Strait of Hormuz have weighed on shipments.
The change is significant given Africa’s historical dependence on the region. Around half of the continent’s diesel imports came from the Middle East last year, with Saudi Arabia alone accounting for about 40 per cent of those Middle Eastern volumes.
The US-Iran conflict has disrupted regional exports, while Iran-aligned Houthi forces in Yemen have imposed a blockade on Saudi Arabia in the Red Sea and attacked Saudi Aramco’s Jazan refinery, contributing to the reduction in Saudi diesel shipments to Africa.
Lower refinery runs at some Saudi Aramco production sites, including Jazan, have added to the decline. Diesel shipments from the Jazan refinery to Africa dropped to zero in August, compared with 163,000 tonnes in July.
Asian Refiners Send More Cargoes West
Asian traders have increasingly directed diesel cargoes westward as the east-west price spread became more favourable during August. The spread, measured as the difference between front-month ICE gasoil and 10 ppm sulphur gasoil swaps, widened to minus $135 per tonne, compared with minus $100 per tonne in July.
Asian supplies are also improving as refinery runs recover and exports from China resume, which could keep the arbitrage opportunity for westbound shipments commercially viable in the near term.
Asian Diesel Margins Rise
Stronger economics are giving Asian refiners an additional incentive to maximise production. Diesel margins in the region averaged about $66 a barrel in August, up from $61 a barrel in July.
At the same time, increasing spot availability has eased some of the tightness in the physical market. Singapore’s benchmark diesel cash premium has fallen to around $4 a barrel, its lowest level this month.
The combination of reduced Middle Eastern availability, shipping risks in the Red Sea and Strait of Hormuz, stronger Asian refinery output and favourable east-west trade economics has consequently shifted a larger share of Africa’s diesel supply towards Asian exporters.
(Reuters inputs)