US restrictions on diesel exports would upend Atlantic Basin clean tanker demand at a moment when the global middle-distillate market is reeling from simultaneous supply shocks in Russia and the Middle East, BRS Shipbrokers said in a report.

The impact on medium-range tanker earnings in particular could be swift and severe, BRS said Sept. 28.

US President Donald Trump had floated a diesel export ban in response to record domestic fuel prices ahead of midterm elections. However, Energy Secretary Chris Wright said Sept. 23 that the government was considering a range of options to keep more US-produced diesel in the country without imposing a full ban.

Diesel prices have soared on the back of a near-collapse in Russian seaborne diesel exports and persistently weak Middle East Gulf refined product flows, BRS said.

“Europe and Latin America would be in the eye of any US ban, considering that there are few easily available alternative supplies,” BRS analysts said.

In the face of this, MRs are the most fundamentally resilient clean tanker segment, Fotios Katsoulas, a shipping analyst at S&P Global Energy Horizons, said Oct. 1.

“Their cargo flexibility and broad exposure to diesel, gasoline, jet fuel, biofuels and other clean products continue to provide diversification benefits that are less available to larger vessel classes,” Katsoulas said.

The Platts clean tanker index hit its highest point to date Sept. 30, at $121,198/day, for non-scrubber-fitted, non-eco vessels. The index was launched in November.

Tanker implications

A full ban could strand around 1.35 million b/d of US Gulf diesel exports — the equivalent of four MR2-sized cargoes per day — with Europe and Latin America most exposed given the absence of readily available alternative supply, BRS said.

Pressure would fall most heavily on MR2s, which carry more than 90% of US diesel exports, BRS said. Beyond the direct loss of cargo, these vessels would also lose a lucrative triangulation opportunity: the ability to deliver gasoline into the US Atlantic Coast before loading diesel in the Gulf for the return leg to Europe, BRS said.

There could also be bleed-in to MR1 markets as MR2s compete for smaller stems, while clean tankers would likely ballast away from the US Gulf, putting pressure on tonnage lists elsewhere, BRS said.

Preliminary data already suggests US diesel exports are rising sharply, with some market participants appearing to preempt a ban by rushing cargoes to market — a dynamic that could inject further volatility if export contracts are subsequently canceled, BRS said.

The offsetting factor for the broader clean tanker complex is a potential redirection of Asian barrels westward. BRS identified only two credible sources of incremental diesel supply: Saudi Arabia’s Red Sea refineries, which could add around 250,000 b/d following the repair of the East-West crude pipeline, and Chinese refiners, although a significant increase in Chinese throughput and exports are unlikely, BRS said.

China exported 425,100 b/d of diesel in September, its highest since December 2022, preliminary data from S&P Global Commodities at Sea showed.

“Regional LRs, which typically position in Asia Pacific after discharging naphtha cargoes, are increasingly being fixed onto long-haul westbound runs into East Africa and Europe [from Asia] — a favourable outcome for owners, since it removes the long ballast leg otherwise needed to bring vessels back East,” analysts at shipbroker Gibson said Sept. 25.

A favorable East-West spread continues to push Middle Eastern and WCI middle distillate cargoes westwards, lifting LR demand, Gibson said.

“High cargo volumes are meeting tighter tonnage as active dirty-up activity continues — with at least 100 units of coated LR2 now engaged in dirty service, leaving overall LR tonnage fairly limited,” Gibson said.

Supply shock

The scale of the diesel supply crunch is stark, in the face of continued conflict between Russia and Ukraine and the Middle East war. Russian seaborne diesel exports plunged to 143,000 b/d in Q3, down from 686,300 b/d a year earlier, according to CAS data. Exports from the Persian Gulf were 540,900 b/d in Q3, down from 1.2 million b/d a year previously, CAS data showed.

Amid this, US exports have risen to 1.5 million b/d in Q3, up from 1.3 million b/d a year earlier, CAS data showed.

“Markets can manage disruptions, but they struggle to manage a whole series of concomitant disruptions,” James Simpson, director of research & analysis at S&P Global Energy, said Sept. 30 in a webinar.

Platts assessed ultra-low sulfur diesel cargoes on a CIF basis in Northwest Europe at $78.86/b Sept. 30, up 151% from Feb. 27, before the Middle East war started, and 274% above the five-year average.

“With the potential diesel ban coming, the appetite for US diesel exports is declining because these products are needed at home, whether there’s a ban or not,” Simpson said.

Source: Platts