European diesel prices touch almost 7.5 year high on tight supply

European diesel prices jumped to an almost seven-and-half-year high Feb. 14 as the market has tightened considerably in recent weeks with buyers clambering to secure any oil they can get.

The 10 ppm diesel cargo FOB Northwest Europe was assessed at $835/mt on Feb. 14, the highest since Sept. 17, 2014, S&P Global Platts data showed.

"People are fighting for the last drop [of diesel]," a market source said. "There is nothing available in the Mediterranean."

The European diesel supplies have shrunk significantly as flows from the East, the US, and Russia have fallen steadily in the past month, warping traditional arbitrage routes as European refiners were still battling with modest margins.

The picture was also supported by historically low stocks of middle distillates, robust global diesel demand, boosting margins for diesel.

Diesel cracks in Northwest Europe, traditionally the biggest marker for refining margins, have ranged between $17-$19/b so far this month, which is close to two-year highs, Platts data showed.

Global diesel demand has remained sturdy, despite January and February typically being slow demand months seasonally. As winter thaws, an uptick in construction, industrial and agricultural activities are expected, boosting demand further.

Bids galore

Given the restricted local production, demand for diesel cargoes in the spot market has been lively throughout January and into February. This upsurge in buying interest can be clearly seen in the Platts Market on Close assessment process.

The first 14 days of February has already seen 151 bids against 18 offers in the MOC, Platts data showed. This compares to 175 bids, 79 offers and 155 bid, 55 offers in January and December, respectively.

Good demand for higher sulfur gasoil but a lack of supply has also seen ultra-low sulfur diesel being bought to cover some 0.1% sulfur gasoil shorts, despite pricing at a premium, according to traders.

In its latest monthly oil market report, the International Energy Agency noted that diesel demand set a new historical high in the final quarter of 2021.

The IEA estimated that total gasoil and diesel demand in countries part of Organization for Economic Cooperation and Development rose to 13.98 million b/d in November, up from an average of 13.15 million b/d in 2021.

Shrinking refining capacity globally, especially in Europe has contributed to a tighter diesel market. High natural gas prices in Europe have also weighed on the costs of producing hydrogen, a key refining component needed to produce ultra-low sulfur diesel.

Flows from Russia, which is a key supplier of diesel for Europe, have also fallen in recent weeks, weighed down by rough weather at the country's Baltic terminals.

This comes as geopolitical tensions between Russia and the West escalate due to the Ukraine-Russia crisis.

Exports of diesel from the port Primorsk are key to Northwest European balances, especially currently, with the market experiencing ongoing tightness due to thin arrivals from East of Suez markets and good demand for cargoes, against a backdrop of very low inventories.

Exports of ultra-low sulfur diesel from the Russian Baltic port of Primorsk were set to fall 1.5% on the month to 1.58 million mt in February, according to a copy of the loading schedule seen by Platts.