Diesel Prices May Remain High as Supply Disruptions Mount

The global diesel market is facing a supply crunch due to war-related disruptions in the Persian Gulf and Russia, which has led to a significant reduction in fuel exports from major hubs. The Middle East and Russia have each lost 2 million barrels a day in fuel exports, forcing consumers to draw from stockpiles. Refiners are facing growing breakdown risks, and industry executives have warned that shortages could worsen as European winter demand rises. The global refining sector’s diesel crunch is likely to result in tight supply for the coming months, keeping prices high and weighing on demand. The price of diesel has run ahead of crude since the start of the war, with the jump in the ICE gasoil benchmark more than twice that seen for Brent, creating inflationary pressures. In the US, retail diesel has hit records above a former peak set in June 2022. Refiners outside Russia and the Middle East are running at high utilization rates to capture gains, but the clock is ticking on how long they can keep up the feat. Refinery equipment gets increasingly vulnerable to breakdowns if operated at high utilization rates for too long, which could mean an outage at a time where buffers are limited, exacerbating the crisis. US exports have helped alleviate tightness particularly in import-dependent Europe, but that may not hold as diesel consumption there begins to increase as temperatures drop. Industry executives have warned of a ‘huge shortage’ in fuels, with one predicting a ‘very difficult winter’ in Northwest Europe.