US diesel inventories have dropped near 23-year lows while the front-month NYMEX heating oil/WTI crack spread hit a record $102 a barrel. European diesel stockpiles are approaching 2022 crisis levels just as the Northern Hemisphere harvest ramps up, and JPMorgan has warned a global food crisis could erupt as soon as next year.
Crack spread hits a record $102
The front-month NYMEX heating oil/WTI crack spread hit a record $102 a barrel, with diesel prices climbing far faster than crude oil itself. Brent and WTI futures still traded below $100 a barrel on Tuesday morning, partly held down by governments releasing strategic oil reserves into the market.
Brent extended its gains to trade around $91 a barrel after another vessel attack was reported near the Hormuz maritime chokepoint. President Trump also said he had no interest in extending the interim peace agreement with Iran, which expired Monday.
Diesel squeeze deepens
US diesel reserves sit near 23-year lows, while European stockpiles are approaching levels last seen during the 2022 energy crisis. According to ZeroHedge: "This is absolutely unprecedented."
Several Wall Street desks have warned about the unfolding diesel crunch. Goldman's Daan Struyven pointed to crashing global diesel exports, while Citi's Anthony Yuen warned that global diesel inventories sit below their five-year minimum. BofA's Francisco Blanch warned of diesel's "perfect summer storm," and Jefferies' Sam Burwell said the Hormuz shock is manifesting itself in cracks, not crude.
Food supply risk grows
Rising fuel costs threaten farmers and freight operators just as the Northern Hemisphere harvest ramps up, with the pressure ultimately reaching consumers through higher food and goods prices. JPMorgan warned last week that a global food crisis could erupt as soon as next year.
Strategic reserve releases are suppressing crude prices, but they do little to resolve the refined-product shortage. Instead, the releases are pushing the US Strategic Petroleum Reserve toward dangerously low levels, below 300 million barrels, while the downstream fuel shock keeps intensifying.
Source: Oilprice.com
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