Diesel Refining Margins Hit Records as Middle East and Russian Supply Tighten

The re-escalation of conflict in the Middle East and Russia’s restrictions on diesel exports amid continued Ukrainian drone attacks on refineries have pushed middle-distillate refining margins to record highs, Tsvetana Paraskova reported for Oilprice.com.

Diesel refining margins surge as disruptions to Middle Eastern and Russian fuel supplies tighten global markets.

Renewed fighting in and around the Strait of Hormuz has reduced expectations for a quick recovery in refined-product flows from the Middle East, leaving diesel markets particularly tight, according to ING commodities strategists Warren Patterson and Ewa Manthey.

The ICE gasoil crack—the difference between the price of a barrel of crude oil and the price of the diesel refined from it—reached a record $79 per barrel.

The US diesel crack was trading above $100 per barrel, according to the report, near the all-time highs reached the previous month.

The market is also showing steep backwardation, with the ICE gasoil September-November spread trading at a backwardation of about $80 per metric ton. Backwardation occurs when near-term contracts trade at higher prices than contracts for later delivery, generally indicating tighter immediate supply.

ING's strategists said disruptions to Middle Eastern and Russian diesel exports, combined with limited signs of an imminent recovery, could keep middle-distillate refining margins elevated and volatile as seasonal demand strengthens.