Diesel Crisis Threatens to Outlast the Middle East War

The Middle East war continues to pose a serious threat to the global economy, as fuel supplies dwindle and prices surge. The refining capacity in the region has been significantly damaged, with up to a fifth of capacity affected, totaling 9.6 million barrels per day. The war has also led to fuel shortages in Ukraine, which is the world's second-largest diesel exporter. This has further tightened the supply of diesel, a crucial fuel for the global economy.

Despite the fact that crude oil prices remain below $100 per barrel, the price of diesel in Europe has skyrocketed by 70% from pre-war levels, even surpassing the cost of jet fuel in some cases. This is the first time in over a year that diesel is more expensive than jet fuel in Europe.

Refinery margins are at record highs worldwide as the energy crisis unfolds. The shortage of diesel is expected to last for months, even if the war were to end. This is due to the tight global inventories of diesel, which have been drawn down by the increased exports from the United States.

The situation is particularly dire in diesel, as global stocks of the fuel were already tight before the war in the Middle East began. This has led to record seasonal highs in diesel crack spreads, with the premium over crude prices reaching as high as $102 per barrel.

The global refinery runs are currently at 5.1 million barrels per day, which is 5.1 million barrels below last year's levels. This has created a significant gap between supply and demand, with inflation risks surging and likely remaining elevated for years. As the weather gets colder in the northern hemisphere, the demand for diesel will increase, both for transport and for heating, potentially exacerbating the energy crisis.