Latin American demand boosts US diesel US diesel markets are firming as a result ...

Latin American demand boosts US diesel US diesel markets are firming as a result of strong export demand, as well as surging consumption in the domestic road haulage sector, reports Argus Global Markets. US middle distillate demand - roughly 80% of which is for diesel, mostly used in the commercial trucking sector - is over 500,000 b/d higher than a year ago (see Figure 1). Gulf coast diesel margins have risen to $7.50/b from less than $4/b six months ago. Colombia has been importing 60,000 b/d of US diesel since January, double the amount it took in 1H2009. Chile imported over 45,000 b/d in the first quarter, 10,000 b/d of which was 15 ppm sulphur diesel. Chile's Enap took nearly 20,000 b/d of US 15 ppm diesel in the second quarter. Chile started importing more diesel after an earthquake in February damaged its refineries. However, it has sharply reduced its import dependency from two years ago, when natural gas shortfalls and low hydroelectric reservoirs forced it to take around 90,000 b/d of US diesel to fire replacement power generation. Chile now has two LNG import terminals operating at Quintero and Mejillones. The US shipped a combined 50,000 b/d of diesel to Costa Rica, Ecuador and Guatemala in the first quarter. Uruguay's diesel demand has fallen this year because of heavy rainfall, which has filled its hydroelectric reservoirs. Other Latin American countries have increased LNG consumption, further eliminating the need for diesel imports from the US and other exporting countries. Chilean diesel specifications have dropped to a maximum 50 ppm sulphur content nationwide. Diesel specifications in the capital Santiago will tighten further to a maximum of 15 ppm from September 2011, while the rest of the country will stick to the 50 ppm figure. Colombia mandates a maximum sulphur content of 30 ppm in its diesel. Some recent US refinery upgrading and expansion projects have boosted diesel output capacity. Marathon expanded its refinery at Garyville, Louisiana, to 436,000 b/d in the fourth quarter, configuring it to produce more diesel. US diesel producers have relied on a regular arbitrage from the US Gulf and Atlantic coasts to Europe. However, low demand and high stocks in Europe have kept the transatlantic arbitrage closed for much of the spring. European middle distillate stocks were at a record high in April, and offshore inventories are around 23mn barrels, according to broker Icap - although this is nearly nine million barrels down on a month earlier.