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Brazilian energy major Petrobras has loaded diesel from India on board a Suezmax crude oil tanker after a month-long delay, according to shiptracking data and trade sources, the first such shipment from India in more than a year amid volatile freight rates for clean product tankers.

The conversion of a crude oil tanker to carry clean products enabled Petrobras PETR4.SA to ship bigger volumes of diesel from Asia at lower costs, with Asian sellers also seeking demand outlets outside this region, the sources said.

The larger shipments will likely ease downward pressure on an oversupplied Asian diesel market and create a price floor for the current market, the sources said. Refining margins seem close to bottoming out at $13-14 a barrel in Asia for now, one of the sources added.

Tanker Milton Santos, chartered by Petrobras, loaded 100,000-105,000 metric tons (745,000-782,250 barrels) of ultra-low sulphur diesel at Reliance’s RELI.NS Sikka port on May 4-5 and is scheduled to reach Brazil in the first half of June, data from LSEG, Kpler and a shipbroking source showed.

The loading was delayed for almost a month because of a longer-than-expected scrubbing and cleaning process, two shipping sources said.

Both Petrobras and Reliance did not respond to Reuters’ requests for comments.

The shipment comes after 360,000 tons of Russian March loading diesel were discharged in Brazil in the past few weeks, with around 177,000 tons of April-loading cargoes scheduled to be discharged this week, according to shipbroking sources.

FREIGHT COSTS

Brazil became a key buyer of Russian diesel exports since Western sanctions on Russian oil products started early last year, with volumes averaging 540,000-617,000 tons a month, Kpler and LSEG data showed.

Arbitrage economics for Russian diesel exports have worsened from ongoing tensions in the Middle East and some cargoes have also been delayed, affecting deliveries to Brazil, one trade source said.

Freight costs for Suezmax tankers on East-to-West routes are around 30% cheaper than the more than $60 per ton costs for clean product long-range 2 (LR) vessels, capable of carrying 90,000-100,000 tons of diesel, a Singapore-based trade source said.

Petrobras has sporadically been using its crude tankers to load diesel in the past three years from India and the Middle East to Brazil, Kpler data showed.

The switch requires crude tankers to be scrubbed clean to make it suitable to carry diesel without contaminating the fuel and the process takes at least two weeks, one Singapore-based shipping source said.

However, the sustainability of this trend remains questionable because of scrubbing, other operational costs, arbitrage price differences and consequential crude tanker freight dynamics, one Singapore-based trade source said.

Exports from the U.S. gulf coast have emerged as the prime option for arbitrage into Latin America, as Asian diesel prices remain firm, said Sparta Commodities analyst James Noel-Beswick.
Source: Reuters (Reporting by Trixie Yap in Singapore, additional reporting by Nidhi Verma, Mohi Narayan in New Delhi and Reuters; Editing by Florence Tan and Emelia Sithole-Matarise)