European diesel margins surge as US supply crunch supports rally

European diesel refining margins reached record highs in early September, driven by both a supply crunch on the US East Coast and geopolitical factors, according to analysts. The physical Amsterdam-Rotterdam-Antwerp diesel crack surged to $98/b on September 1 before falling to $95.30/b on September 2, exceeding August's average of $80.50/b, July’s $71.71/b, and June’s $44.75/b.

While geopolitical tensions, including the Middle East conflict and Russia's diesel export ban, contributed to the elevated crack, a more significant driver was the low US East Coast diesel inventories, with New England stocks hitting a record low of 2.3 million barrels. This shortage, coupled with Irving Oil's Saint John refinery shutting down for maintenance, is expected to strain the East Coast's ability to build diesel stocks ahead of the heating oil season.

The tight US market has increased competition for Gulf Coast barrels. Europe, a net diesel importer, has relied more on US supply since the Middle East conflict disrupted exports from that region. Russia's diesel export ban has further intensified competition for US barrels. The Rhine River, a crucial European inland freight corridor, is projected to have water levels below 25 cm early next week, potentially disrupting fuel supply chains across the continent.