July 16, 2020 / 12:21 PM / a month ago

Russia ships Baltic diesel to Med as regional refineries cut runs

MOSCOW, July 16 (Reuters) - Shipments of Russian diesel from Baltic to Mediterranean region opened in July as refinery run cuts in Europe and low freight rates offered opportunities for arbitrage trade, according to traders and Refinitiv Eikon data.

The arbitrage trade takes advantage of cheaper diesel in the Baltic and supplies the fuel to the Mediterranean where prices are higher.

The tanker Ardmore Dauntless that loaded at Primorsk port will supply 30,000 tonnes of diesel to Turkey’s Maramara port for the first time since at least 2015, Refinitiv Eikon data showed.

The tanker Huey that loaded at Primorsk on July 8 will ship 30,000 tonnes of diesel to Morocco, data also showed.

“The Mediterranean diesel market is very volatile these days, so we often see an arbitrage opportunity,” a trader in European oil product market said.

Traders expected more shipments of Russian diesel loading in July from Baltic ports and heading to the Mediterranean where refineries have cut output. Several Mediterranean refiners including Turkey’s Tupras cut runs due to weak margins.

Russia with its allies in the OPEC+ group agreed on record output curbs since May 1, which led to a sharp decline in diesel-rich Urals oil and a jump in prices of the Russian grade.

Urals refining margins in the Mediterranean were negative, at minus $3.68 per barrel on average for the last two weeks, according to Refinitiv Eikon data.

Low-sulphur diesel cargoes traded in the Mediterranean at a premium of $6 to $12 per tonne to cargoes in northwest Europe ULSD10-C-NWE, according to Refinitiv Eikon data.

Cheaper freight also supported arbitrage shipments of diesel from the Baltic region to the Mediterranean.

Freight rates for vessels carrying 30,000 tonnes in northwest Europe were down to 90 Worldscale points, or WS90, the lowest level since 2009, according to Riverlake data carried by Refinitiv Eikon. In January, the rates were WS300.

The WS system is an industry tool used to calculate freight rates.

In the Mediterranean, freight rates for such vessels are at WS95 RL-BSEAMED-C30, the lowest since September 2016. (Reporting by Natalia Chumakova; Writing by Olga Yagova; Editing by Edmund Blair)

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