By: Jon Costello
I’m no expert on the tanker market, but the prospect of U.S. diesel export restrictions struck me as creating a logistical effect the market might be underappreciating and therefore worth investigating.
The obvious conclusion might be that fewer U.S. diesel exports would mean fewer tanker voyages and lower rates. But Europe and Latin America would still need diesel. If Gulf Coast barrels disappeared, some buyers might have to replace them with cargoes traveling much farther from refineries in Asia or elsewhere. After all, tanker demand depends not simply on how many barrels move, but on how far they travel.
That led me to Scorpio Tankers STNG 0.00%↑ , whose 75-vessel product-tanker fleet includes 36 MRs, 25 larger LR2s and 14 Handymaxes. An export curb would eliminate some U.S. voyages and could pressure rates, particularly for MRs serving shorter Atlantic Basin trades. The question was whether longer replacement voyages could create enough tanker demand to offset those lost cargoes.
I found that anything that materially reduces U.S. exports would likely be a near-term negative for Scorpio because the lost cargoes are more certain than any potential replacements. Consider that U.S. distillate exports were substantial, averaging 1.56 million barrels per day in the four weeks ended September 18. The EIA category is broader than diesel, but in June about three-quarters went to Latin America and the Caribbean, led by Mexico and Brazil, while Europe took only about 16%. An export restriction would therefore eliminate existing tanker voyages before any benefit from longer replacement routes developed.