Key facts
- Attacks on Russian and European refineries have intensified a global diesel supply crunch.
- Refining margins have surged to record highs, with the 3-2-1 crack spread exceeding $70 per barrel.
- US diesel inventories are at a 30-year low, and exports have reached an all-time high.
- Russia has banned diesel exports to manage domestic supply shortages caused by Ukrainian drone attacks.
- Europe faces significant diesel supply challenges due to refinery closures and reduced access to Russian fuel.
- High diesel prices are expected to impact various sectors of the economy and potentially lead to political pressure.
Global diesel supply is facing a severe crunch, exacerbated by ongoing attacks on refineries in Russia and the Middle East, coupled with increasing demand ahead of peak winter usage. This situation has led to record-high refining margins and soaring diesel prices worldwide.
In Southeast Asia, palm oil farmers are experiencing diesel shortages and price spikes. The United States has seen record diesel exports, while its domestic inventories have fallen to their lowest levels since 1996. Russia, a major diesel exporter, has banned exports to address its own supply squeeze, which is partly due to Ukrainian drone attacks on its refineries.
Europe is particularly vulnerable, with refinery closures driven by emission reduction rules and a loss of access to Russian fuel. This forces European importers to compete for limited supplies from other regions, such as the US. Analysts predict significant price increases for diesel in Europe, which could have cascading effects on consumer goods, services, and potentially lead to political pressure.
The importance of diesel is underscored by its role in critical sectors like agriculture, construction, mining, and supply chain distribution. The current supply squeeze is considered more serious than crude oil shortages, with refining margins reaching unprecedented levels. The 3-2-1 crack spread, a key indicator, has surpassed $70 per barrel, far exceeding the typical $20.
Adding to the energy concerns, the European Union's natural gas stocks are below seasonal averages, raising fears of potential shortages this winter. Relief in global diesel supply is not expected in the near future.