For many years, the transatlantic arbitrage trade for product tankers consisted of diesel movements from the United States to Europe and gasoline from Europe back to the U.S. Europe was traditionally short diesel and long gasoline, while the reverse was true in the U.S. This has been the basis for a lucrative triangulation trade that product tankers (mostly MRs) are taking advantage of. However, circumstances are changing, especially in Europe. European diesel demand is on the decline. In this Tanker Opinion we will try to determine what the reasons are, whether the declines are irreversible and – important for the tanker industry – how falling diesel demand will impact ton-mile demand for product carriers.
Demand for diesel in Europe is driven by the economy, environmental regulations and the weather. On top of the that, we have to consider the geopolitical situation. Traditionally, diesel has been an important road fuel for both cars and trucks in Europe. In the mid-1990s, European governments implemented policies favouring diesel cars. Diesel was taxed less than gasoline and consumers were also encouraged to buy diesel cars because they had lower CO2 emissions. By the mid-1990s, diesel cars accounted for less than 10% of the European car fleet, but by 2012, this figure had surged to over 50% in some countries, like the UK. This led to a significant increase in diesel demand. However, the advantages of diesel cars may have been overstated, including the environmental benefits, highlighted by the 2015 Volkswagen emissions scandal, also known as “Dieselgate”. The U.S. Environmental Protection Agency discovered that Volkswagen had equipped its diesel vehicles with software designed to cheat emissions tests.