Refined Fuel Shortage Sends Diesel Prices Soaring

The oil crisis has led to a tale of two barrels, with Brent crude prices dropping significantly but refined fuel prices falling much less. According to the International Energy Agency (IEA), Middle Eastern processing was 2.9 million barrels per day below pre-war levels in the second quarter and will remain 2.2 million bpd lower in the third. Ukrainian attacks have pushed Russian refining near a two-decade low, while reduced Chinese processing and fuel exports have added to the shortage.

The problem is most acute for diesel, with IEA estimates showing exports from Russia, the Middle East, and major Asian suppliers were 1.3 million bpd lower in July than a year earlier. This represents roughly a fifth of the seaborne trade on which importers rely. Europe has little buffer: stocks of gasoil, a close proxy for diesel, at the Amsterdam-Rotterdam-Antwerp hub are 24% below their five-year average.

Refiners are making the most of the shortage, with European diesel's premium over Brent almost tripling from around $25 a barrel at the start of the year to more than $70. Consumers are already feeling the difference: diesel at the pump was roughly a fifth more expensive in July than in February across major European markets.