Diesel cracks have reached record highs due to escalating Middle East conflict and Russia's ban on diesel exports, exacerbating a global fuel squeeze. Refiners are expected to see significantly higher profits as supply disruptions persist.
Record high diesel cracks indicate a severe global fuel shortage, impacting transportation and industrial costs. The situation is expected to persist, leading to higher consumer prices and potentially affecting economic activity, while significantly boosting refiner profits.
Global diesel markets are experiencing unprecedented tightness, with middle distillate cracks reaching record highs this week. This surge is attributed to a confluence of factors, including the re-escalation of conflict in the Middle East, particularly around the Strait of Hormuz, and Russia's ban on diesel exports. These events have disrupted expected oil product flows from the Middle East and stifled supply from Russia, leading to a significant squeeze.
The pricing difference between crude oil and the diesel refined from it, known as the crack, has hit historic levels. The ICE gasoil crack reached a record $79 per barrel on Tuesday, while in the United States, diesel cracks are trading above $100 per barrel, nearing previous all-time highs. This acute tightness is further reflected in market structures, with the ICE gasoil Sep/Nov spread trading at a backwardation of $80 per ton, signaling strong demand for immediate supply.
ING's commodities strategists, Warren Patterson and Ewa Manthey, noted that the global refining system has limited capacity to absorb these disruptions. They anticipate that middle distillate cracks will remain highly elevated and volatile, especially as demand typically strengthens seasonally. Goldman Sachs also weighed in, revising its profit forecasts to suggest that refining companies could double their profits from the current diesel shortage.