Europe Diesel Crack Hits Two-Year High on Supply Fears

Gross diesel margins in Northwest Europe (NWE) soared this week to the highest level since September 2023 as supplies from Russia – the world’s second largest exporter – come under pressure from sanctions and Ukrainian attacks on refineries and ports.

The diesel crack versus Brent jumped to almost $46/barrel on Tuesday, according to OPIS pricing data. This spread is based on spot ULSD prices in Amsterdam, Rotterdam and Antwerp (ARA), and compares with $19/bbl a year ago.

Diesel supply concerns re-emerged last month as the U.S. announced sanctions on Lukoil and Rosneft. Companies must stop dealing with the two largest Russian oil companies from Friday, at a time when Russian fuel supplies are already being constrained by constant Ukrainian attacks on refineries.

Moreover, the EU banned imports of fuel made from Russian crude from Jan. 21, which will likely impact supplies from Turkish and Indian refiners.

Ole-Rikard Hammer from Arctic Securities warned Wednesday that the combination of Ukrainian strikes on Russian refineries and U.S./EU sanctions is a perfect storm for the diesel market.

“Not only is the actual volume down 30-50%, but buyers are shunning what is available due to the sanctions. This is happening in the midst of the regular refinery maintenance season with an estimated 3 million b/d of non-Russian capacity off-line in October and November,” he said.

As a result, diesel is in very short supply, particularly in the Atlantic basin. The spread between the two months at the front of the European Low Sulfur Gasoil (LSG) curve of futures reached $45/metric ton on Wednesday, which is equivalent to $6/bbl.

“I think people realize there is just no oil,” a market source told OPIS.

–Reporting by Jaime Llinares Taboada, jllinares@opisnet.com