Global Diesel Cracks Weaken Amid Supply Surplus

Atlantic Basin clean product cracks have weakened amid growing refined product supply from the Middle East and Asia, despite strong demand from LatAm, Oceania, East and South Africa, low stocks in USAC, and European uncertainty for alternative diesel supplies, according to Vortexa.

• Global diesel cracks weakened in the East of Suez markets since mid-September and then in the Atlantic Basin since mid- October as refinery operations recovered amid maintenance, strikes and new capacity ramps up in the Middle East and China.
• New capacity in the Middle East and China has pushed diesel liftings up by 7% in Nov, compared with previous highs in August.
• The risk of diesel supply tightness in Europe has eased as record imports during Oct/Nov averaged 1.73mbd, 26% higher than Oct/Nov 2021 with around 40% originating from Russia due to a big pre-sanction Primorsk diesel export programme.
• The large seaborne diesel influx coupled with a warm European winter and disappointing Chinese demand reveal a surplus unforeseen a few months ago – when Atlantic Basin cracks surged largely due to global diesel supply uncertainty.
• But even with the current weakness in diesel crack spreads, values continue to remain more than double what they were pre-invasion in Jan-Feb 2022, according to Argusmedia.
• Some upside to cracks was given by LatAm product demand, as imports have outpaced pandemic levels with some recent signs of slowing (Brazil) after reaching highs in Sept/Oct 2022.