(Bloomberg) — A diesel squeeze is playing out across Europe as a slew of major supply challenges coincide, according to Morgan Stanley, which flagged record refining margins in the region and slumping stockpiles.<\/p>\n
\u201cThe picture is genuinely tight,\u201d analysts including Martijn Rats said in a July 19 note. \u201cOur supply\/demand modeling points toward European diesel inventories falling to multi-year lows toward year-end,\u201d they added.<\/p>\n
Global energy markets have been jolted this month by the fresh flare-up in the US-Iran war, although petroleum product prices have rallied harder than underlying crude oil. The market for diesel \u2014 a workhorse fuel that powers trucks, agriculture and industry \u2014 has been tightening on a host of factors including the disruptions in the Strait of Hormuz, but also Ukrainian attacks against Russian refineries, and a diesel-export ban imposed by Moscow.<\/p>\n
\u201cThe real bottleneck in the oil system right now is refining, more so than crude,\u201d the analysts said, pointing to some unsold African oil cargoes, as well as bearish contango pricing in some parts of the market. \u201cThe epicenter of all this is the diesel market, and Europe in particular.\u201d<\/p>\n
Diesel-refining margins in Northwest Europe \u2014 known as crack spreads \u2014 have surged to a record, they said. Local stockpiles are expected to draw steadily from August, reaching a low of about 299 million barrels in November – the smallest for the time of year since at least 2015, they added.<\/p>\n
Further afield, industry conditions in China were also contributing to the tightness as refiners processed less crude. \u201cChina never supplies Europe with diesel directly,\u201d the analysts said, but when \u201cChina runs less, there\u2019s simply less product in the global system to spill westward.\u201d<\/p>\n
Still, Morgan Stanley cautioned that the tightness was already reflected in prices, advising investors against betting on more gains from current levels. The market is \u201cfull priced \u2014 don\u2019t chase,\u201d they said.<\/p>\n
European diesel futures traded as much as 3.5% higher at $1,219.50 a ton on Monday, the highest level since May 20. In crude oil, Brent contracts rallied to top $90 a barrel, taking gains this month to 24%.<\/p>\n
\u00a92026 Bloomberg L.P.<\/p>\n","protected":false},"excerpt":{"rendered":"(Bloomberg) — A diesel squeeze is playing out across Europe as a slew of major supply challenges 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