European Diesel Market Will Continue to Tighten Due to Supply Disruptions
The diesel market in Europe is facing further tightening as multiple supply disruptions have caused inventories to drop to their lowest level in years, according to analysis from Morgan Stanley.
"The situation is really tense,"Morgan Stanley wrote in a note on Sunday published by Bloomberg."Our supply/demand model indicates that European diesel inventories will fall to multi-year lows by year-end."
Reasons Behind Tightness
The diesel market, as well as the fuel market in general, is reflecting a very different picture from the decline in crude oil prices in late June and early July, after the deal between the US and Iran collapsed. Refining margins for gasoline and diesel soared to record highs earlier this month, thanks to renewed escalation in the Middle East, Russia's ban on diesel exports, and a decline in global fuel inventories.
| Index | Value |
|---|---|
| Diesel refining profit (USD/barrel) | Over 60 |
| Crude oil price (relative) | Reduce |
The increase in fuel margins and crude oil price differentials suggests that the global fuel market remains very tense, even though millions of barrels of crude oil had left the Strait of Hormuz before the recent tensions.
Russian Export Ban and Global Impact
Diesel refining margins in Europe rose to a record above $60 a barrel after Russia announced a ban on diesel exports to ease a domestic fuel crisis caused by a series of Ukrainian drone attacks on Russian refineries.
"Unlike crude oil, refined products face fewer mitigation options,"Ole Hansen, Head of Commodity Strategy at Saxo Bank, said in an analysis last week."Many refineries in the Middle East remain affected by the ongoing conflict while Russian diesel export restrictions continue to constrain global supply capacity."
Limits on Refining Capacity
Global refining capacity also remains relatively limited, preventing increases in crude oil supply from quickly turning into additional diesel and gasoline production.
Global Diesel Inventory Situation
Meanwhile, U.S. diesel inventories have been well below seasonal averages over the past five years in PADDs 1 and 3, as well as at the Amsterdam–Rotterdam–Antwerp (ARA), Fujairah and Singapore hubs, according to data from Insights Global reported by Argus.
With the current tense situation, analysts are closely monitoring developments in the diesel market and factors affecting prices in the near future.
We can see that the tightening in the diesel market not only affects Europe but also has a major impact globally.
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