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Tsvetana Paraskova

Tsvetana Paraskova

Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews. 

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Europe’s Diesel Crisis Is Far From Over

  • Europe’s diesel crisis is set to worsen as refinery maintenance and unplanned outages result in reduced supply.
  • The benchmark diesel profit margins in Europe rose last week to the highest in two weeks.
  • Wood Mackenzie: diesel stocks are unlikely to build from current levels.

Europe’s diesel crunch is set to worsen in the coming months as more European refineries shut down for maintenance this month, and unplanned outages reduce supply. European fuel demand will draw additional imports from other regions, tightening further already tight global refined product markets.  The expected tightening of the diesel market in Europe will come just as the EU prepares to ban the import of Russian refined petroleum products by sea as of February 2023. 

More European Refineries Offline

The benchmark diesel profit margins in Europe rose last week to the highest in two weeks, per Reuters’ estimates, while analysts and traders told Reuters that diesel prices are set to jump amid a tightening market.

In October, major refineries across Europe will undergo planned maintenance, bringing a total of 1.5 million barrels per day (bpd) of capacity offline, according to estimates from Energy Aspects cited by Reuters. That’s higher than the September capacity under maintenance and above the five-year average before COVID.

Then there are unplanned outages, such as the current refinery outage in France due to a strike of refinery workers over disputes over pay. More than half of France’s refinery capacity is currently offline due to the strikes. Traders of diesel and other products in Europe are concerned that the uncertain timing of the return of that capacity would further tighten the market just ahead of the EU embargo on Russian oil products early next year.

Related: Shell, Aramco: There’s No Quick Fix For Tight Oil Market

Mark Williams, an analyst at Wood Mackenzie, doesn’t expect diesel stocks to build from current levels.

“We expect prices to really spike ... mid-January, probably February, but we may see a spike little bit earlier as the market starts to panic,” Williams told Reuters.

Europe Looks To Replace Russian Fuel Imports 

Europe still imports a lot of diesel from Russia, months before the embargo, and paying more for the fuel than it did for that supply back in May. But it is also looking to import more diesel from Asia and the Middle East, as flows observed by oil analytics firm Vortexa in early September showed.

Despite the fact that U.S. domestic diesel stocks are sitting at critically low levels, seaborne refined product exports from the U.S. Gulf Coast have increased in recent months, supported by growing demand from key consumers in Latin America and Europe, the latter seeking replacement barrels for Russian diesel, Pamela Munger, Senior Market Analyst at Vortexa, wrote last week. 

Industrial demand, a strong harvest season, and power generation are pulling diesel supplies to Latin America. Europe has also increased diesel imports from the U.S. Gulf Coast in the four consecutive months to September. This has given U.S. refineries a strong incentive to maximize diesel yields in the second half of this year and beyond, Vortexa’s Munger says.  

The Biden Administration has once again floated the idea of limiting U.S. fuel exports with the purpose of lowering domestic fuel prices. The industry warns that any artificially imposed limits on U.S. fuel exports could lead to potential cost increases, refinery closures, job losses, and productivity declines in America, and will only aggravate the global supply shortfall. 

Global Diesel Markets Set To Remain In Deficit 

While the crude oil market could still be in surplus, even with the EU embargo and price cap on Russian oil, “product markets, especially diesel, are expected to remain in deficit due to downstream capacity constraints outside of China,” the International Energy Agency (IEA) said in its latest Oil Market Report in September.   

“The EU has so far largely maintained Russian diesel import volumes at around 600 kb/d, but from next February these volumes will need to be replaced by other sources,” the IEA said.

“The proposed price cap mechanism would also need to work in order to assure overall diesel supply for the global market is met and so that European importers can switch to flows from the US, Middle East and India. Failing that, and assuming Russia will not be able to ship diesel in significant quantities outside the price cap, European, Latin American and African importers could be competing for a rather smaller pool of available flows,” the agency noted. 

A potential savior of the tight global product market could be China, which has just issued its biggest fuel export quotas to its refiners for this year. More exports of fuels from China could alleviate the product market globally ahead of the EU embargo on imports by sea of Russian crude and refined products. 


Yet, diesel markets will remain tight, analysts say.

“Global diesel fundamentals remain strong, despite a cool down from the seasonal peak in Q2. Demand will be primarily led by Europe, which has seen diesel loadings to the region rising steadily to a four-month high of 1.9 mbd in 1H September,” Serena Huang, Head of APAC Analysis at Vortexa, said a week before the issuance of the Chinese fuel export quotas. 

Despite recent build-ups in diesel inventories in Fujairah, Singapore, and the U.S., stocks are still well below the five-year average. 

“Besides China’s diesel exports outlook, the other big wildcard that could swing the market would be how cold Europe’s winter will be this year,” Huang said.

By Tsvetana Paraskova for Oilprice.com

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