High demand buoys diesel prices as Europe’s fuel crisis worsens
Diesel may not be glamorous but it is increasingly prized, with refiners in Asia and the Middle East stepping up shipments of the vital industrial fuel to Europe as the region grapples with a shortage.
Exports from Asia swelled to near a three-year high in September of 306,000 barrels a day, according to Vortexa Ltd. data. The region’s reliance on Asian and Middle Eastern supplies is likely to continue as inventories remain low with winter approaching, said Serena Huang, lead Asia analyst. Flows of diesel from processors in the Middle East are also expected to surge this month.
Europe is facing a mounting diesel crisis as strikes cut supplies, stockpiles run low, and the European Union prepares to choke off flows from Russia after Moscow’s invasion of Ukraine. At the same time, the US is also grappling with a shortage, boosting global demand for cargoes. The rising competition has widened the premium commanded by Europe’s diesel prices over Asia’s, spurring Asian refiners to ship more fuel to benefit from the discrepancy.
Global diesel markets are set to face more volatility even as refinery strikes in France ease, according to Yawen Lu, an analyst at FGE, who also highlighted uncertainty over volumes from China despite processors having been handed additional export quotas. Profits from producing the fuel are likely to remain strong and supplies from Asia into the Atlantic Basin will continue, she said.
Europe’s predicament is likely to worsen as an early-February deadline approaches to block fuel imports from Russia — its single largest foreign diesel supplier. Stockpiles of the fuel in northwest Europe may contract to record lows then, according to Wood Mackenzie Ltd.
The front-month East-West swap, a measure of the premium for diesel in Europe over Asia, widened to $60.50 a ton on Thursday, according to PVM Oil Global data. The differential, which averaged just $7.40 a ton in 2021, hit almost $100 in March after the outbreak of the war in Ukraine.
