European diesel prices saw a significant rise on Wednesday due to worries about US sanctions on Russia and recent shutdowns at several refineries, making the market more vulnerable than usual.
The gap between diesel futures and Brent crude oil increased to $34 a barrel, the widest it has been since September 2023. This premium has more than doubled since June, when it was around $16 a barrel.
On Wednesday, diesel prices climbed about 1%, while Brent crude fell nearly 3%, settling around $63.25 a barrel. In north-west Europe, diesel prices surged to about $845 a tonne, a jump from $628 last month, although they later decreased to around $800 a tonne.
Giovanni Staunovo, an oil analyst at UBS, noted that traders were responding to a tight supply situation amid unexpectedly high demand. Several refineries recently faced outages or reduced production, including one in Kuwait that had a fire in October. Facilities in the US and Nigeria have also seen output cuts.
Staunovo added that the impending US sanctions on major Russian oil producers Lukoil and Rosneft, set to start on Friday, likely contributed to the rising prices. These sanctions will prevent any transactions involving these companies’ international assets, although Lukoil’s Bulgarian refinery has received a temporary exemption allowing it to operate until April 2026.
Furthermore, the EU has imposed sanctions on refined Russian products imported from nations like India and Turkey. Output from Russian refineries has also been impacted by recent Ukrainian drone strikes.
“Refined product inventories are at extremely low levels, and distillates like diesel aren’t much better,” Staunovo explained, indicating that global demand is currently surpassing expectations.
Benedict George, an analyst at Argus Media, pointed out that European prices are particularly sensitive to supply and demand issues since the region has shut down many refineries over the last few years.
The oil market is currently caught between fears of a supply shortage due to sanctions on Russia and concerns of a longer-term oversupply driven by increasing US shale production and an economic slowdown.
Last week, three major international organizations that monitor global crude markets released outlooks, revealing significant discrepancies in their demand forecasts—the widest in over two decades, which is adding to confusion among traders.
Since early 2024, Europe has closed around 400,000 barrels per day of refining capacity. Initially, refiners anticipated a decrease in demand due to the shift toward green energy, while smaller facilities have struggled to compete.
George suggested that the price surge may be temporary, as refineries typically avoid maintenance during winter, potentially boosting output. However, he cautioned that the sector remains at risk of price fluctuations from supply disruptions.