Europe Faces a Diesel Shortage This Winter, According to Bloomberg
Europe may face a serious diesel fuel shortage this winter due to the combined effects of the war in the Middle East, damage to oil refining facilities in the Persian Gulf countries, and Ukrainian strikes on Russian refineries.
The situation on the global diesel market has already deteriorated significantly.
Supply disruptions through the Strait of Hormuz, damage to refineries in the Persian Gulf countries, and Ukraine’s attacks on Russian oil infrastructure have limited exports from regions that last year accounted for about one-third of global diesel supplies.
The greatest risks lie for Europe, which lacks sufficient domestic oil refining capacity and is heavily dependent on imported diesel fuel.
“Europe has a huge problem with diesel. The situation will become very difficult, and we will likely see extremely high prices. This will affect transportation costs and inflation and create additional political pressure on governments,” said Eugene Lindell, head of the petroleum products division at the consulting firm FGE NexantECA.
According to him, the consequences of the shortage may not be immediately apparent, but the situation could worsen as the cold season approaches.
Supply issues are already affecting fuel prices. The European diesel futures contract has risen by nearly 40% from its low on June 18, while the price of Brent crude has risen by about 5% over the same period.
Bloomberg notes that diesel is critical to the economy, as it is used by the automotive sector, industry, the construction sector, and heating systems.
Therefore, rising diesel prices could fuel inflation even if oil prices remain relatively stable.
At the same time, diesel fuel stocks in key importing regions are declining. In Europe, they have fallen by about 30% since the end of March and are now well below seasonal averages.
The reduction in Russian refining capacity has added further pressure on the market.
Ukrainian strikes on refineries and other oil infrastructure are reducing Russia’s ability to produce and export petroleum products, Bloomberg notes.
At the same time, Europe continues to operate under sanctions against Russian petroleum products. According to Rachel Zimba, a senior fellow at the Center for a New American Security, restrictions on imports of Russian petroleum products remain in effect, and new EU sanctions are making it increasingly difficult to purchase fuel produced from Russian oil in third countries.
Thus, Europe is simultaneously facing a reduction in supply and restrictions on some potential suppliers.
For now, U.S. refineries are propping up the European market. Last week, the U.S. exported a record volume of distillates, a significant portion of which went to Europe.
However, Bloomberg warns that such shipments are unlikely to continue indefinitely. As winter approaches, U.S. refineries will have to focus more on domestic demand, particularly heating needs.
“Refineries on the Gulf Coast cannot export diesel to Northwestern Europe indefinitely. They also need to supply their own market,” said Zamir Yusuf, head of refined products analytics at Kpler.
Similar risks are emerging in Asia. Due to the war in the Middle East, some Asian power plants may increase their use of diesel fuel if they face problems accessing liquefied natural gas.
At the same time, Asian refineries themselves will need more fuel as winter approaches.
Some facilities may also switch to producing kerosene, which is used for heating. This will further reduce the volume of diesel available for export.
According to Bloomberg, the scale of the problem will depend on winter temperatures, the operating rates of global refineries, and the volume of diesel exports from China.
At the same time, analysts already expect Europe to enter the cold season with much lower fuel stocks than usual.
“We have not been able to fully compensate for the loss of refining capacity in the Middle East, and now we have also lost part of Russia’s capacity. Europe’s diesel problem is not an immediate crisis, but an issue that will unfold further,” said Jun Go, a senior oil market analyst at Sparta Commodities.
This was reported by Bloomberg.
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