Key facts
- Attacks on Russian and Saudi refining facilities have worsened a global diesel supply crunch.
- Refining margins have surged to record highs, exceeding $70 per barrel.
- US diesel futures rose sharply, and retail prices reached $5.32 per gallon.
- Refineries are operating at near-maximum capacity, with limited room for increased output.
- Diesel inventories in the US are at a 30-year low for this period.
- Supply disruptions are expected to persist due to ongoing conflicts and refinery maintenance.
Global diesel supply is facing a significant crunch, exacerbated by recent attacks on refining facilities in Russia and Saudi Arabia. This disruption, occurring just before peak demand season, has sent refining margins and diesel prices soaring to record highs.
Refining margins in Europe have surged by 10%, building on already elevated levels, while US diesel futures experienced their sharpest rise since July, climbing 7.4% to $4.19 per gallon. The average retail price for diesel in the US reached $5.32 per gallon, a substantial increase from previous months and years. Analysts note that refining margins are breaking records, with the 3-2-1 crack spread, a key benchmark, exceeding $70 per barrel, far above the typical less than $20 per barrel.
Refineries worldwide are operating at exceptionally high utilization rates, some above 95%, to compensate for lost supply from the Middle East and Russia. However, there are limits to this capacity, and the onset of refinery maintenance season is expected to further tighten supply and push prices higher. Europe, in particular, faces a shortage of refining capacity due to years of closures driven by decarbonization policies, making it more reliant on global markets.
China's fuel export curbs, though slightly eased, are not significantly alleviating the global crunch. Meanwhile, US diesel inventories have plummeted to their lowest level in 30 years for this time of year, limiting the country's ability to boost exports. Compounding the issue, the US Energy Information Administration anticipates that some Middle East oil production will remain offline until late 2027, suggesting a prolonged period of tight supply for both crude oil and refined products.