Diesel is the brightest spot in today’s petroleum complex thanks to structural changes in crude and products markets over recent years. Opec-plus supply cuts, OECD refinery closures and geopolitical events — particularly sanctions on Russian petroleum exports — have helped tighten diesel markets, contributing to the fuel’s current counter-seasonal strength. The big question now is whether the market can rebalance, or if it is facing bigger, fundamental issues that could provide longer-term support for broader oil markets. Production of diesel, a middle distillate along with heating oil and jet fuel, has been adversely affected by Opec-plus output cuts initiated in 2017 that removed significant supplies of heavier, sour crudes — the type that yield the most middle distillates in a complex refinery — from the market. PVM oil analysts recently assessed that middle distillate inventories in the US, Northwest Europe and Singapore showed a deficit of 10% to the five-year average and were 15% below year-ago levels. In the US, a key diesel exporter, distillate inventories remain 16% below the five-year average even after surging by nearly 11 million barrels over the three weeks ending on Jul. 25, according to the US Energy Information Administration.
