Diesel prices are surging after Ukrainian drone strikes hit a Russian refinery and Houthi forces struck a Saudi refining facility, deepening an already tight global fuel market just as demand season peaks. Refining margins have hit record highs, and refiners have little spare capacity left to add supply.
Diesel prices jumped this week after another Ukrainian drone attack on a Russian refinery and a Houthi strike on a Saudi refining facility rattled an already imbalanced fuel market. The disruption lands right before peak demand season, and it is pushing prices higher on both sides of the Atlantic.
US diesel futures jump 7.4% in a session
US diesel futures climbed 7.4% to $4.19 a gallon on Monday, their sharpest one-day rise since July, Reuters reported. Retail diesel averaged $5.32 a gallon on Tuesday according to AAA data, up from $4.88 a month earlier and $3.71 a year ago.
Refining margins hit records
European refining margins rose 10% from an already elevated base this week, Reuters said, as the war in the Middle East and the Ukrainian drone campaign against Russia's refinery network keep tightening supply. The 3-2-1 crack spread, a standard refining-margin benchmark, has surged past $70 a barrel, the Wall Street Journal noted, up from a usual level of less than $20. Margins stay elevated, Ritolia told the Wall Street Journal, because every additional barrel of product has become more valuable than every additional barrel of crude oil.
Refiners have little spare capacity left
According to the Wall Street Journal: "Refinery utilization above 90-95% simply means there is very little operational flexibility left", Kpler's lead analyst for refining supply and modeling, Sumit Ritolia, said. Exxon and Chevron have reported utilization rates of 95% to 97%. Shell, meanwhile, said its refineries ran at over 100% utilization. Refineries are now entering maintenance season, which could pull more capacity offline just as fuel supplies tighten further.
Relief unlikely before 2027
Analysts expect margins to stay elevated through the end of the year, since Russia's ban on diesel exports isn't lifted until 2027. The U.S. Energy Information Administration also expects some Middle East oil output to stay shut in well into 2027. US diesel inventories have dropped to their lowest level for this time of year in 30 years, Reuters noted, leaving little room for Washington to boost exports to fuel-hungry markets abroad. Persistently higher diesel costs could feed into broader inflation, since the fuel underpins freight, farming, and heating.
Source: Oilprice.com
Trading involves risk.
Risk Disclaimer
