European diesel prices sank after the EU imposed sanctions on Russian imports (“EU diesel: wise crack”, Lex, April 12).
However, two other parts of the story make the recent price slump even more peculiar.
In addition to the sanctions, diesel crack spreads — the differential between diesel and crude prices — have also faltered in recent weeks amid strikes at French refineries. This caused supply shortages at petrol stations with the state forced to release strategic stocks. These events typically boost cracks.
Interestingly, European diesel cracks have also dropped despite seasonal turnrounds at refineries across Europe. This is a period of upkeep and maintenance at various plants, which temporarily suspends output of refined products and usually supports prices.
Sufficient stocks in Europe are one cushion to the recent supply shocks, numbing the price impact.
Demand is another, with Europe’s annual diesel demand expected to fall year on year. Limited supply tightness in the region is also apparent from softer backwardation, where the spot or cash price is higher than the forward price, in the ICE gasoil futures curve.
Finally, lower diesel cracks should be taken in context. In the past year, we’ve seen atypical highs from sanctions, scant supplies, and shifting trade flows. But the current cracks are actually near historical averages for this time of year, especially as petrol takes a seasonal lead.
Rebeka Foley
Senior Analyst, Oil Markets, Europe & Russia, S&P Global Commodity Insights
London E14, UK
