The G7 announcement of a release of 100 million barrels of crude oil and diesel has pressured down middle distillate refinery margins, which had hit record highs last month.
The start of stock releases over the next four months and the reduced risk of a U.S. ban on diesel exports sent the ICE gasoil crack down to about $70 per barrel now, from as high as $85 a barrel in the middle of last week, Warren Patterson, Head of Commodities Strategy at ING, said on in a note on Monday.
Crack spreads are indicators of the profitability of refining crude oil into petroleum products such as gasoline and diesel and are used as a proxy for refinery margins. The diesel crack spread is the gross profit margin an oil refinery makes by converting a barrel of crude oil into diesel fuel.
Despite the markedly weaker diesel crack at the start of this week, the margins remain historically high as the G7 stocks release does not solve the tightness beyond some immediate market relief, according to ING and other analysts.
The stock release “is helpful in the short term, but the only permanent solution to the tightness in middle distillate markets is getting refined products flowing from the Persian Gulf once again,” ING’s Patterson said.
In the Middle East right now, “there’s still little sign of an end to tensions. We have seen an increase in attacks on commercial vessels in the Persian Gulf recently,” the strategist added.
UK Maritime Trade Operations (UKMTO), which is affiliated with the Royal Navy, has reported seven strikes on vessels around the Strait of Hormuz since September 28.
Iran’s ability to target ships has also improved in recent weeks, which makes transits through the chokepoint riskier than a few weeks ago, a U.S. official has recently told the Wall Street Journal.
By Tsvetana Paraskova for Oilprice.com
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