Europe can replace Russia-derived diesel volumes

Diesel supply in the Atlantic Basin is set to tighten into early Q4 as seasonal demand in Northwest Europe and PADD 1 lifts while Russian exports remain constrained. The January 21st EU ban on Russia-derived products adds uncertainty, especially for India and Turkey barrels sent to Europe. But even under strict enforcement, alternative supply from the Middle East Gulf and PADD 3 should largely cover the deficit. 

Demand shifts keep winter balanced

LHS: PADD 1 and Northwest Europe diesel/gasoil imports (bd)

RHS: Atlantic Basin (excluding PADD 1 and Northwest Europe) diesel/gasoil imports (bd)

Winter season diesel demand in the Atlantic Basin is usually concentrated in Northwest Europe and PADD 1 (October-February). Using 2021 to 2024 as a baseline, Q4 seaborne diesel/gasoil imports into Northwest Europe and PADD 1 typically rise by about 10% and 25% q-o-q, respectively. Both of these markets currently sit below the seasonal inventory average (Argus, EIA), so restocking for winter heating could amplify the import demand. 

At the same time however, the rest of the Atlantic Basin diesel import demand usually softens in Q4, most notably the Mediterranean and South America East Coast, freeing barrels for NWE and PADD 1. Brazil’s diesel imports, for instance, are close to the top of the seasonal range in September, pulling in volumes from PADD 3 and India amid less Russia supply. This market however is likely to face lower import demand in Q4, following the seasonal curve with lower agriculture-linked diesel usage. This year, the balance is likely to be driven less by demand drivers, and more by supply timing and regulation.

Russia sets a lower starting point

On the supply side, Russian diesel/gasoil exports are tracking below the seasonal average, with September exports standing at 760kbd, the lowest seasonal level since 2017. Partial export restrictions and refinery disruptions have reduced supply into the Atlantic Basin, but exports are expected to start recovering in late Q4, as refineries come out of seasonal maintenance. However, this is possibly limited by any long lasting damage from drone attacks.

Turning to the biggest offtaker of Russian diesel, Turkey, diesel/gasoil imports have been severely constrained by the limited availability. With fewer inflows, Turkey’s diesel/gasoil exports to Europe have dropped by 50% m-o-m in September, and are likely to stay pressured while Russia supply is tight.

Turkey net-imports of diesel/gasoil (kbd)

January ban: Turkey and India in focus

Turning the attention to January and the EU ban on Russian-derived product imports, the main diesel suppliers to Europe affected are Turkey and India. Since 2024, Europe has imported 270kbd of diesel/gasoil on average from these two countries, but the real volume affected (produced from Russia crude) is likely less than half this number. Setting this against the average volume of diesel/gasoil exported by the Middle East Gulf and PADD 3 to non-Europe destinations in the past 12 months, 2.1mbd (or eight times higher than the total diesel volume Europe imports from Turkey and India), any type of sustained supply shortage seems unlikely.

Europe diesel/gasoil imports from India and Turkey (kbd, bars) and Middle East Gulf + PADD 3 diesel/gasoil exports to non-Europe destinations (kbd, lines)

Seasonal maintenance then becomes the last piece in question. Refinery turnarounds in Europe and the Middle East are set to peak in October, with products supplied by these refineries likely returning to the market in the second half of Q4. This will likely ease prompt tightness currently keeping European diesel cracks elevated y-o-y, and further alleviate concerns of any tightness going into January’s import ban.