Trading house Vitol has capitalized on rising US distillates production this summer by sending large volumes of US diesel to Europe, testing the ability of its ports to cope with large vessels, traders said Monday.

Vitol also made the first export of gas-to-liquids jet fuel to Europe in July, part of an attempt to boost profits in the increasingly competitive world of oil trading, they said.

The US exported more than 1.5 million mt of gasoil and diesel each month to Europe this summer, at or near record levels, as US refineries continued to benefit from cheap crudes due to the shale revolution, said traders.

US refiners as well as European majors Total and Shell and trading houses were all involved in the trade, but Vitol stood out as it sold the volumes publicly in the Platts Market on Close assessment process.

Across July and August, Vitol sold around half a million tonnes of diesel in the MOC process, the majority of which came from the US.

Traders were able to track the deliveries as Vitol opted to sell a lot of its diesel on named ships.

Vitol was by far the largest seller in the MOC while Shell was the biggest buyer with around half a million tonnes, data from Platts shows.

The US Gulf Coast, in the south, has been a regular provider of diesel to Europe over the last few years, but never before has so much diesel been sent from the US Atlantic Coast, in the northeast, to Europe, according to traders.

Vitol was a major player in that trade as it reportedly sent diesel from the US Gulf Coast to the northeast of the country via the Colonial pipeline and mixed it with material produced by refineries in the northeast, before shipping the product onboard large vessels.

Platts was regularly told by traders over the summer that the product loaded by Vitol was grade 61 gasoil, which cannot be sold in its original form as diesel as it does not meet Europe's diesel specifications.

Sources at Vitol said the gasoil was either being upgraded onboard the cargoes or in the company's terminals in the Amsterdam-Rotterdam-Antwerp area, before being re-exported to demand centers in the rest of Europe.

The parameters most often cited as needing to be doped were conductivity, cetane number and lubricity. Doping is the process of adding chemicals to a refined product to change its composition.

Vitol's trading was coordinated across several markets, said traders, as the company was also a major seller of diesel and 50 ppm sulfur gasoil in the ARA barge market.

NORTHWEST EUROPE TERMINALS FACE LARGER VESSELS

There has been a marked trend in the European diesel market this year of receiving product onboard larger vessels due the increasing availability of diesel globally and the improved freight economics.

This has been mainly the case for US volumes, but traders said exports from Saudi Arabia's new refineries -- to be operational later this year and next -- would likely come on ships of 60,000 mt or more. Asian barrels have already been exported to Europe on 90,000 mt vessels for a number of years.

For terminal owners and importers, this means having to upgrade terminals over the next few years in order to capture this new business, but in the short term it can complicate oil import logistics, said traders.

Vitol's vessels, often between 40,000 and 55,000 mt deadweight, could not fit some ports in Northwest Europe area this summer and mostly went to the bigger terminals that exist in France and Germany, they said.

Terminals in the UK's Thames, Germany's Bremen and France's Bordeaux cannot normally take ships above 35-40,000 mt due to draft restrictions.

The ships would also be too large for most terminals in the Mediterranean basin, which tend to be even smaller than in Europe's north.

In late August Vitol sold three cargoes of 45,000 mt or more to Shell in the Thames, the UK's largest import location for diesel.

The cargoes ended up being accepted by the receiving terminal, said traders, but that did not come without problems as the terminal had to waive a number of restrictions around vessel size that normally apply.

"There is no experience down there at the terminal of dealing with those vessels," said a trader. "They rise very high above the water."

Vopak, Shell and Greenergy announced last year the opening of a new fuel import terminal on the site of the former Coryton refinery in the Thames.

The terminal will be able to accommodate larger ships and will likely be fully operational at the start of next year, according to traders.

DIESEL PREMIUMS STUCK IN RANGE THROUGH SUMMER

Northwest European cargo cash premiums in early July fell to a five-month low of front-month ICE 0.1% gasoil futures plus $16.25/mt CIF ARA as traders said the US would export record volumes of diesel over the summer.

But premiums quickly rose afterwards as European refineries opted to reduce production in the face of poor margins and with the seasonal lift in end-consumer demand, said traders.

They remained stuck between plus $25/mt and $31/mt for most of the summer afterwards, with Vitol selling large volumes on the one hand and Shell buying a lot on the other, they said.

"If you look at the price, it's actually not moved very much," said one trader, adding that Shell's buying had offset Vitol's selling. "In the end, both traders should have enjoyed their holidays a bit more."

A second trader said: "The price has been stable but lower than it could have been without the selling activity, so whoever offered profited and buyers weren't proved correct."

Going into the autumn period, traders said Vitol may have replaced volumes from the US with sales from Asia, with as much as 750,000 mt said to be heading to Europe for September.

This means that the company could continue to be on the sell-side over the next few weeks, as it has been since the end of June, they said.

Vitol declined official comment for this story.