Europe taps constrained markets for diesel supply

Europe's diesel supply has become increasingly constrained due to global supply disruptions caused by the breakdown of the US-Iran ceasefire, Houthis attacks on Saudi vessels in the Red Sea, and tight supply in the USGC, NWE, Med, and Asia regions. Diesel margins have surged above $80/bbl, jet/kero margins above $70/bbl, and gasoline margins at $36/bbl.

Global diesel arrivals have remained above seasonal averages for four out of five months since March 1, with seaborne clean product flows to the Atlantic Basin increasing in July to levels unseen since February 2026. However, these flows are primarily coming from India West Coast, rather than the Middle East and Geographical routes.

The Atlantic Basin is expected to enter a winter of tightness, with refined products forward cracks nearing post-Hormuz 1.0 levels. Supply constraints are likely to persist in the Atlantic Basin due to crude supply constraints, limited alternative supplies from Yanbu, and refinery preservation of domestic refined product supplies in Asia.

Indian diesel export duty and reduced seaborne clean product exports have worsened the situation, as Russia's diesel exports have slowed to a trickle. Atlantic Basin refineries are operating at maximum rates, but unplanned outages are increasingly common, raising concerns about the long-term sustainability of this production level.

Despite Europe's dependence on USGC diesel, unplanned shutdowns at US refineries have forced market adjustments. Current inventories in the Atlantic Basin are below seasonal ranges, creating a precarious supply situation.