London (Platts)--15Aug2013/840 am EDT/1240 GMT

European imports of ultra low sulfur diesel from the US were seen at 1.5 million tons in August, holding steady month on month amid continued prompt supply tightness in Europe, traders said Thursday.

"The arbitrage has remained well open. I think we saw a little more tightness on the prompt in Europe and, so, the European premiums remained pretty high," a Geneva-based diesel trader said.

The 10 ppm CIF Northwest European cargo premium to front-month ICE 0.1% gasoil futures has rebounded sharply since hitting a five month low on July 5.

The premium hit a one-month high of $30.50/mt on August 1, while the Mediterranean cargo premium reached a six-week high at $31.75/mt on August 6, Platts data showed. The volume of ULSD exported from the US in July was the largest since November 2012.

Traders attributed much of the export incentive to higher Renewable Identification Number prices. RINs, credits associated with every gallon of renewable fuel produced in the US, are purchased by refiners, importers and blenders to demonstrate to the Environmental Protection Agency they have fulfilled mandated government use of renewable fuels.

Several US cargoes have been offered and traded in the Platts Market on Close assessment process this month.

The MT Maria M, ETC Nefertari, and the Eships Falcon, all ships offered by trading house Vitol, are coming from the US. Other ships heard coming from the US were Valero's 50,000 deadweight-ton Horizon Theano, which was sold on Tuesday and is on its way to the French Mediterranean port of Fos-sur-Mer. The Maersk Clair, another Vitol cargo, was also on its way to the Mediterranean, traders said.

US arbitrage barrels will continue to make their way to Europe for at least another month, with the regional maintenance season expected to cut local production, traders said, adding Europe could be short 1-1.5 million mt of ULSD later in the third quarter.

The US barrels could face competition from the East. Indian group Reliance Industries was due to start exporting volumes at the end of Q3, according to traders.

"There will be competition between US and East barrels for sure. But I think Europe will need both, especially if it is 1-1.5 million mt short because of the refinery maintenances," a second diesel trader said.

--Charles Goldner, charles.goldner@platts.com
--Edited by Dan Lalor, daniel.lalor@platts.com

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