Deepening supply crisis keeps European diesel prices near record high

Physical European diesel prices remain close to all-time highs, driven by a confluence of supply disruptions that traders and analysts said could further tighten an already depleted global middle distillates market.

The 10ppm CIF NWE cargo flat price was assessed at $1,642.25/metric ton on Sept. 15, marking the highest level since Platts, part of S&P Global Energy, began the assessment. It pulled back to $1,608.25/mt on Sept. 16, the second-highest level on record.

The Mediterranean equivalent — the ULSD 10ppmS CIF Med cargo — also hit a record Sept. 15, closing at $1,664.75/mt, and remained at the second-highest level on Sept. 16, at $1,632/mt.

"Supply disruptions, depleted inventories and strong refining margins highlight an increasingly severe shortage of middle distillates," Ole Hansen, head of commodity strategy at Saxo, said in a note Sept. 16.

The physical ARA diesel crack stood at $85.16/barrel on Sept. 16, roughly in line with jet fuel — leaving it uncertain which product domestic refiners will prioritize in their output mix, a dynamic that offers little relief for diesel shortages currently affecting the market.

Supply disruptions

Saudi Arabia temporarily shut its East-West Pipeline as a precaution after multiple attacks on the crude system in the Riyadh and Madinah regions, according to a Sept. 11 statement by the Saudi Press Agency.

"The pipeline had become a critical bypass around the Strait of Hormuz following the disruption to Gulf shipping earlier this year, recently carrying an estimated 4 [million]-5 million barrels per day. Its closure has therefore removed one of the most important safety valves in the global oil system at a particularly vulnerable time," Saxo bank's Hansen said.

The shutdown forced Saudi Aramco to cancel or delay some September crude deliveries to European buyers, including Poland's Orlen, which said Sept. 16 that it contracted 16 additional crude oil cargoes to replace missing Saudi supply.

Compounding the Saudi disruption, Russia extended a full diesel export ban through the end of October, Russian newspaper Vedomosti reported Sept. 15. Analysts had little expectation for the return of sufficient diesel export volumes in the coming months, which the extension confirmed.

Despite the US announcement on an energy truce between Ukraine and Russia, both countries continued to strike each other's energy infrastructure.

US President Donald Trump urged Ukraine's President Volodymyr Zelenskyy to stop targeting Russian diesel refineries, suggesting that the Ukrainian strikes, rather than the conflict in Iran, had caused a global diesel shortage.

"Clearly, Trump's message asking Zelensky to stop attacking Russian refineries did not immediately have the intended effect. That said, I don't think it's unreasonable to expect Trump to continue to press this point to get Zelensky and Putin into some sort of an energy ceasefire deal," said William O'Neil, principal analyst at S&P Global Energy CERA.

But even if Russia and Ukraine reach any sort of agreement, it would be "very shaky" at this point in the war and "might not fully pacify markets," especially since it would take time for Russian refiners to significantly boost diesel supply to the market to reach pre-June levels, O'Neil said.

Meanwhile, US Senate Majority Leader John Thune told reporters in Washington he would be "open to exploring" a ban on diesel exports in response to surging prices. However, European market participants appeared skeptical of the measure's likelihood.

"The market is not taking [the potential US export ban] seriously," a European diesel trader said.