Diesel’s Supply Crunch Is Widening | Presented by CME Group
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Summary
A Bloomberg Quicktake explains a global diesel supply crunch driven by Persian Gulf refinery outages, Ukrainian attacks on Russian refineries, and lower Chinese runs. Diesel prices remain high despite crude pullbacks, and refinery margins are the key driver, likely to stay elevated even if oil drops, threatening further transportation cost increases.
- Over 70% of goods are transported by diesel in the US, making it critical to agriculture, construction, mining, and distribution.
- A global diesel shortage is fueled by Persian Gulf refinery disruptions, Ukrainian attacks on Russian refineries, and reduced Chinese refinery output.
- Diesel prices have remained elevated even during crude oil pullbacks and US-Iran truces.
- The average on-highway diesel price was $5.31, up from $3.53 a year ago.
- Refinery margins are the dominant driver of diesel prices this time, not crude oil.
- The diesel supply squeeze is expected to keep margins high even if oil prices decline, posing challenges for the transportation sector.
Ideas
Diesel supply crunch keeps prices high.
A global diesel supply crunch exists because Persian Gulf refineries cannot export, Ukrainian attacks on Russian refineries, and lower Chinese refinery runs have tightened supply. Diesel prices have stayed high even during crude oil pullbacks and US-Iran truces, threatening to raise transportation costs further in the fall. This points to continued high diesel prices.
Refinery margins to stay high.
Refinery margins, not crude oil, have been the dominant driver of diesel price gains this time. With the diesel supply squeeze, those margins are likely to stay elevated even if oil prices come down, making long diesel crack spreads attractive.
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