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Global diesel fuel crunch to worsen

19:19, 10 August 2022

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A Valero fuel truck on a highway in the UK.
Global diesel shortages to worsen soon - Photo: Getty Images

The global diesel crunch could tighten in the coming months, despite signs of a recession – with the US struggling to produce more, Europe moving towards its planned ban on Russian energy and with Asia shunning costly natural gas.

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Russia shipped 680,000 barrels of diesel a day to Europe in July, marking a 13% month-over-month increase and a 22% year over year hike in exports, said David Wech, the chief economist at oil analytics provider Vortexa, in a note.

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US diesel exports rose to 1.4 million barrels per day last month, a five-year high, according to Vortexa data compiled by Bloomberg. Those shipments wound up in Europe and in Latin America.

Capacity maxing out

But with low inventories in America and "the industry basically running all out," dispatching more diesel to Europe is going to be a “real challenge” for the US, according to Gary Simmons, the chief commercial officer at Valero Energy.

"So it's very difficult for me seeing that there's going to be a lot of flow from the US into Europe," Simmons told investors last week. 

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The “short-term diesel outlook is one of tight fundamentals through the coming winter,” independent consultancy ESAI Energy’s analysts including Linda Giesecke told market participants earlier in August.

Demand may rise even more in Europe and Asia in the coming months, ESAI said, as high natural gas prices prompt some to switch to crude to keep factories running and homes warm through the winter.

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More agony for Asia

“Persistently elevated diesel prices are especially bad news for Asian economies,” Vandana Hari, the founder of oil markets analysis firm Vanda Insights, told Capital.com.

“Diesel costs fuel inflation and affect the lower-income families much more relative to jet or gasoline, as the fuel is used for goods and public transportation. It is used in farming, some industrial processes, and in back-up power generators,” she said. 

Testing EU’s tenacity

“Overall, it appears questionable whether Europeans will manage to fully carry through on the announced diesel import ban, given record diesel prices already over the last five months, Europe’s rising rather than falling dependency on Russian diesel, limitations within the global refining system, and the likely significant role of diesel as a replacement fuel for natural gas and power shortfalls,” Wech argued in a recent client note.

Farther away, “Asia(n) economies and consumers, unfortunately, will be paying the price of the Ukraine war,” Hari added.

 

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