From S&P/Platts, August 23:
The diesel crisis lies dormant. While prices have dropped from a March spike, record-low stocks, demand expected from the onset of winter, and the threat of a drop off in Russian supplies could all cause prices to erupt.
Diesel prices may have fallen some 25% since hitting a record high March 8 amid growing demand destruction as the global economy creaks, inflation spirals, and Russian oil flows keep coming.
But diesel prices remain at elevated levels, including the important ultra-low sulfur diesel benchmark.
S&P Global Platts assessed the key ULSD 10ppmS FOB ARA price at $1,079.75/mt on Aug. 18 compared to a peak of $1,466.50/mt, but this is still significantly higher than the $686/mt price seen at the start of the year and before the outbreak of the Russia-Ukraine war.
And there are credible reasons to think these high prices could continue.
Low stocks
Diesel stocks in Europe, most easily tracked at the Amsterdam-Rotterdam-Antwerp refining hub, are at historic lows and at the lowest monthly average levels in over a decade. Backwardation continues to discourage storage of product.
Inventories elsewhere are heavily depleted, including at key hubs in the US and Singapore, as global diesel levels are well below recent averages. Platts Analytics has warned stocks are "not building fast enough ahead of harvest and heating seasons."
Demand on the rise
With winter approaching, demand for heating using diesel and rampant gas-to-oil switching, given the likelihood the global gas crisis will dwarf any difficulties in oil market tightness, will keep demand for the middle distillate stronger than economic conditions may otherwise suggest.
"The diesel crisis is far from over, but the drivers are changing as we head into shoulder season," said Mark Rossano, CEO of C6 Capital Holdings. "As winter comes into focus, the global market now has to contend with mother nature as storage is very low and people haven't even started using their heating."....
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