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Europe’s Diesel Crunch Is Set To Worsen

Despite recent signs of weaker diesel demand and economic headwinds, diesel and other crude product supply in Europe is set to tighten in the coming weeks amid higher than normal refinery maintenance and unplanned outages at refineries, such as the ongoing French strike that has taken 60% of France’s refining capacity offline.  

The expected tightening of the diesel market in Europe will come just as the EU prepares to ban the import of Russian refined petroleum products by sea as of February 2023.

The benchmark diesel profit margins in Europe rose this week to the highest in two weeks, per Reuters’ estimates, while analysts and traders told Reuters that diesel prices are set to jump amid a tightening market.

In October, major refineries across Europe will undergo planned maintenance, bringing a total of 1.5 million barrels per day (bpd) capacity offline, according to estimates from Energy Aspects cited by Reuters. That’s higher than the current capacity under maintenance and above the five-year average before COVID. The higher capacity planned for maintenance this October could be partially explained by the COVID restrictions of the previous two years when only essential maintenance was carried out, Livia Gallarti of Energy Aspects told Reuters.

However, apart from planned maintenance, there have been unplanned outages, such as the current refinery outage in France due to a strike of refinery workers over disputes over pay. More than half of France’s refinery capacity is currently offline due to the strikes, and traders of diesel and other products in Europe are concerned that the uncertain timing of the return of that capacity would further tighten the market just ahead of the EU embargo on Russian oil products early next year.

Mark Williams, an analyst at Wood Mackenzie, doesn’t expect diesel stocks to build from current levels.

“We expect prices to really spike ... mid-January, probably February, but we may see a spike little bit earlier as the market starts to panic,” Williams told Reuters.

By Tsvetana Paraskova for Oilprice.com

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