The world’s diesel market is once again showing signs of chaos, undermining the global economy from a new round of inflationary pressures.
Powering the trucks, trains and ships that run industries, the fuel is commanding huge buy-now-premium orders in Europe.
Surrounded by a workers’ strike over wages at French oil refineries that lasted more than three weeks, the continent is struggling to prepare for a ban on imports from major supplier Russia that is 3 1/2 months away.
America has lowest Seasonal inventory in data that started in 1982 and went into winter.
Chaos is the last thing Europe needs with skyrocketing energy prices, but there may be worse to come.
Biden administration officials pressured fuel producers to curtail foreign exports and punished them for low diesel stockpiles.
“It’s extremely tight, end-user stocks are exceptionally low,” said Gary Ross, a veteran oil advisor-turned-hedge fund manager at Black Gold Investors LLC. “I don’t know where again the supplies come from. Diesel is the world’s industrial product, so it won’t help an already weak economic climate.”
At one point this week, traders were paying a premium of $160 a tonne — more than $20 a barrel — to get a physical barge-load of road fuel in Europe.
This is a sign of tight inventory. This compares with $24 a tonne a month ago.
In New York, the physical market is so tight that the premium went up there too. The market has been in a bullish backwards trading pattern since last August.
The structure means sellers are losing money while they hold onto the supply.
The market often turns to contango—as opposed to backwardation where future prices are higher—in the middle of the year, encouraging suppliers to build up inventory in the summer before the harvest and summer season.
Diesel is the engine of the global economy. It is used for transportation, heating, and industrial processes, which means price increases can lift everything from the cost of heating a home to the cost of finished goods.
“At a macroeconomic level, high oil processes drive inflation and reduce economic growth,” said Mark Williams, director of research for short-term oils at WoodMackenzie Ltd.
“The rising cost of diesel fuel affects everyone, because diesel prices directly affect manufacturing, transportation and heating costs. As diesel prices rise, so does the cost of goods that are common. generally passed on to the consumers.”
Market conditions may ring alarm bells in Berlin, Paris and even Moscow. Last month too, Europe got two-fifths of its diesel imports from Russia.
For its part, Russia continues to ship about 80 percent of its fuel shipments to Europe.
With a shortage of specialist ice-strengthened tankers exporting from Russia’s Baltic Sea ports in the winter, there is a question as to how easily the petroleum industry supply chain will be able to access those supplies in alternative markets.
The market has been in various states of chaos ever since the invasion of Ukraine created uncertainty about what would happen to diesel flows.
But with the EU sanctions – a punishment for Vladimir Putin’s war – drawing closer, the market didn’t need to attack France.
The industrial crackdown that began in late September became so bad that the French government asked the striking workers to distribute fuel.
About a third of the country’s filling stations were facing shortages at one point this week.
On Friday, there were signs of relief under the strike action. Workers at Exxon Mobil Corp’s French plants halted operations, although Total Energies SE’s refinery in Normandy was still blocked.
The resumption may not be coming soon enough for buyers.
“Diesel is already very tight,” said Helz André Martinsson, senior oil analyst at DNB Bank ASA. “We could easily end up with a winter squeeze.”
– With the help of Chunjie Xu.
(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)