India's Sept diesel flows to Europe reach all-time peak, Oct volumes slowing

SINGAPORE (Reuters) - India's September-loading diesel exports to Europe hit an unprecedented high as traders cashed in on arbitrage profits to the West, although the likelihood of such volumes continuing through October was unlikely, traders and analysts said.

Exports also got a boost from a seasonal lull in domestic demand, an India-based trading source said.

"This trade flow was mainly attributed to the opened arbitrage for India-origin cargoes to head West, with traders potentially preparing for the loss of Russian diesel barrels to Turkey as well due to the export ban," said Vortexa's head of APAC analysis, Serena Huang.

Russia banned diesel exports on Sept. 21 to stabilise domestic market fundamentals, though this was partially lifted from Oct. 6.

The surge in India-origin diesel to Europe will help the continent build commercial stockpiles ahead of the winter heating season, easing supply shortage worries and limiting overall price gains.

The westward pull for cargoes, in turn, will support Asian refining cracks, or margins, mitigating a modest supply glut in the region.

Exports from India to Europe totalled between 280,000 barrels and 303,000 barrels per day (bpd) in September, accounting for half of India's total diesel exports for the month, shiptracking data from Vortexa, Kpler and LSEG showed.

Exports to Singapore, by contrast, fell by around 73% month-on-month in September, as it was more profitable for sellers to ship cargoes west.

The east-west arbitrage, typically measured using the exchange of futures for swaps (EFS) price differential - a spread between ICE gasoil futures and Asia's prompt month gasoil swaps - averaged $76 a ton daily in the second half of September, LSEG data showed.

A drop in India's windfall export tax during much of September also encouraged refiners to sell their cargoes outside home, one Singapore-based trading source said.

This is in addition to the rising cash premiums for India-origin exports, with deals for September cargoes at premiums of around $4 a barrel compared with August premiums at $2 to $3, a second Singapore-based trading source added. [MDIS/TENDA]

"However, the arbitrage spreads have narrowed in the past week, so the flows will slow in October," Vortexa's Huang said.

The EFS spreads have narrowed by almost $20 a ton from a week earlier, LSEG data showed.

October volumes bound for Europe from India thus far are around a quarter of September levels at 75,000 barrels per day, Kpler shiptracking data showed.

Exports from India for October are likely to remain thin due to several factors including ongoing refinery turnarounds and peak Diwali festive season demand, LSEG analysts said.

At least three Indian refiners plan to take their crude units and some corresponding downstream units offline in the fourth quarter of the year for maintenance, Reuters records showed. [REF/OUT]

(Reporting by Trixie Yap in Singapore, additional reporting by Mohi Narayan in New Delhi and Ahmad Ghaddar in London; Editing by Tony Munroe and Sharon Singleton)

By Trixie Yap