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Diesel prices in Europe are rallying amid tightening supply due to Red Sea shipping disruptions, threatening to test the resilience of European economies which have narrowly avoided recessions in recent months.
With many tankers now avoiding the Red Sea/Suez Canal route, diesel supply to Europe from Asia has become more expensive as freight and insurance rates have jumped and vessels are making a longer trip all around the Cape of Good Hope in Africa.
The global benchmark for diesel prices, the gasoil futures, have increased by 15% in just over a month, according to data reported by the Financial Times.
In another sign of market disruption in Europe from the Suez Canal issues, the premium of diesel cargoes loading at the Amsterdam-Rotterdam-Antwerp (ARA) trading hub against North Sea Dated crude widened to $29.29 per barrel at the end of last week, the highest in seven weeks, according to Argus estimates.
Futures and retail diesel prices in Europe are further set to jump in the coming weeks amid Suez Canal disruptions and the higher shipping costs for two weeks’ time added to tanker travel via Africa, analysts say.
“We see tighter European diesel balances in the upcoming months . . . which will provide [an] upside to time spreads and retail prices.” Natalia Losada, an oil products analyst at Energy Aspects, told FT.
During the latest reporting week to January 23, hedge funds and other money managers nearly doubled the net long position – the difference between bullish and bearish bets – on ICE Gasoil futures, Ole Hansen, Head of Commodity Strategy at Saxo Bank, said.
The boost in bullish bets on gasoil futures in Europe is indicative of the expectations of portfolio managers that supply will be tightening in the near future.
With lower diesel volumes crossing the Suez Canal en route to Europe from Asia, European buyers are becoming more reliant on imports from the U.S.
However, upcoming maintenance at several refineries in the United States would leave lower volumes of diesel available for exports to Europe, driving futures and retail prices further up, potentially putting another price burden on the struggling economies in Europe.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.