European diesel markets are set to further tighten as multiple supply disruptions have combined to drag inventories to multi-year lows, analysts at Morgan Stanley say.
“The picture is genuinely tight,” Morgan Stanley’s wrote in a note on Sunday carried by Bloomberg.
“Our supply/demand modeling points toward European diesel inventories falling to multi-year lows toward year-end,” the U.S. investment bank said in the note.
The diesel markets, and fuel markets in general, have been telling a very different story for weeks from the decline in crude oil prices at the end of June and early July following the now-collapsed U.S.-Iran memorandum of understanding.
Refining margins for gasoline and diesel jumped earlier this month to new record highs after the re-escalation in the Middle East, Russia’s ban on diesel exports, and crumbling global fuel inventories.
The surge in fuel margins and the price spread over crude prices suggest that the global fuel markets remain very tight despite the millions of barrels of crude that managed to exit the Strait of Hormuz before the latest flare-up.
Diesel refining margins in Europe jumped to a record high of over $60 per barrel after Russia announced a ban on diesel exports in a bid to ease its domestic fuel crisis caused by a spate of Ukrainian drone attacks on Russian refineries.
“Unlike crude oil, refined products face far fewer mitigation options. Several Middle Eastern refineries remain affected by the ongoing conflict while Russia’s diesel export restrictions continue to constrain global availability,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said in an analysis last week.
“Refining capacity globally also remains relatively limited, preventing crude supply increases from quickly translating into additional diesel and gasoline production.”
Meanwhile, diesel inventories are well below the five-year seasonal range for PADDs 1 and 3 in the United States, the Amsterdam–Rotterdam–Antwerp (ARA) hub, Fujairah, and Singapore, according to Insights Global data reported by Argus.
By Tsvetana Paraskova for Oilprice.com
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