Diesel Cracks Set for Weekly Gain Amid Ongoing Tight Supplies

Diesel crack spreads have regained ground this week amid ongoing tight supply concerns ahead of winter and despite the easing of the Russian export ban. The front month US spread remains high having risen from just over 37.4$/bbl on 6 Oct to 44.4$/bbl although still below the peak of 57.1$/bbl seen in August.

• Refiners are producing a lower proportion of middle distillates due to lighter crude feedstocks from crude production cuts. The risk of reduced diesel rich supplies from Iran following the Israel conflict would reduce supplies further. An increase in demand heading into the winter heating season and the rebound in jet fuel demand is an added support to diesel markets.
• “The loss of crude quality has made the refinery optimization task very challenging,” said Mukesh Sahdev at Rystad Energy. “Refineries now have a challenge to make high-distillate fuel with less crude oil.” The easing of the Russian ban will help alleviate the diesel shortage to some extent, but won’t resolve it, added Sahdev.
• The proportion of diesel in global refinery production will drop 1.5% and about 1.2mbpd this quarter from a year earlier, according to Wood Mackenzie.
• Low global stocks remain supportive amid seasonal refinery maintenance with US distillate stocks 12.7% below the five year average, European ARA Gasoil stocks 22% below and Singapore Middle Distillates inventories 13.1% below average.
• Premiums for diesel-rich crude grades popular in Europe grades such as Azeri Light, Johan Sverdrup and Egina have surged over grades more suited to making gasoline.
  • Gasoil NOV 23 up 2.3% at 905$/mt
  • ULSD NOV 23 up 1.6% at 3.09$/gal
  • Gasoil NOV 23-DEC 23 up 2.75$/mt at 29.5$/mt
  • Gasoil DEC 23-DEC 24 up 6.75$/mt at 86.75$/mt
  • EU Gasoil-Brent down -0.2$/bbl at 29.03$/bbl
  • US ULSD crack up 0.1$/bbl at 44.48$/bbl