Diesel premium in Europe jumps to record high

The gap between the price of crude oil and wholesale diesel in Europe has jumped above $100 for the first time, after renewed conflict flared in the Middle East and Russia extended its ban on diesel exports. 

The price premium, known in the industry as the crack spread, hit $104.08 for delivery to southern Europe this week, according to data from Argus Media, leaving wholesale diesel at more than twice the price of North Sea oil.

Argus Media warned that the gap could widen over the next two months due to refinery maintenance.

“European diesel cracks have never topped $100 per barrel before,” said Josh Michalowski, European head of diesel pricing at Argus Media. “This is truly unprecedented.”

The price of diesel above the price for physical delivery of North Sea crude to southern Europe peaked on Tuesday before falling to $100.79 on Wednesday. Deliveries to northern Europe hit $99.66 a barrel on Tuesday, paring to $96.53 on Wednesday, according to Argus Media. 

The premium pushed the price of diesel on Wednesday to $198.73 a barrel in southern Europe and $194.47 a barrel in northern Europe, less than the all-time high of $215 hit on April 2 but still piling cost pressures on motorists, farmers and multiple other industries. 

Diesel crack spreads in the US climbed above $100 a barrel for the first time last month, adding to the challenges facing President Donald Trump ahead of midterm elections in November but also boosting US export revenues.

Analysts have long warned about tightness in markets for refined products amid persistent conflicts in Ukraine and the Middle East. 

This week’s resumption of fighting between the US and Iran has affected both diesel and crude, with Brent climbing back above $90 a barrel.  

But diesel is under particular pressure due to Russia’s export ban, which it extended on Saturday to September 30, and to limited exports from Asian refineries and the steady rundown of stocks in the US, analysts said.

Roughly 1.3mn to 1.4mn barrels a day, or 15 to 20 per cent of normal international diesel shipments, are missing from the market, according to Argus Media. 

“We are still in a market where global diesel supply does not match diesel demand, so inventories are being drawn,” said Alan Gelder, senior vice-president for refining at Wood Mackenzie. 

“With the global economy muddling along despite current prices, higher diesel prices are required to bring demand down to current supply availability,” he added.

Amrita Sen, co-founder and director of market intelligence at Energy Aspects, said the Trump administration had helped to artificially suppress crude prices by frequently talking up the prospect of an end to the Iran war. But the tactic had not had the same effect on refined products. 

“While product fundamentals are incredibly tight given the lack of Middle Eastern and Russian barrels, cracks are also doing the heavy lifting to raise end-product prices towards demand destruction levels and balance the market, because crude [alone] cannot — or has not,” she added. 

Michalowski at Argus Media said that while prices could dip in the short term, scheduled maintenance at European refineries “could push the crack even higher” this month and next.