MOSCOW (MRC) -- European diesel markets are flashing warnings of tightening supply while crude oil markets are weakening after nearly two weeks of disruptions at French refineries due to strike action, traders said, as per Hydrocarbonprocessing.
The industrial action, part of a nationwide movement against planned pension system changes, has led to reduced output at the Normandy and Feyzin refineries while shipments from the Donges and La Mede refineries have also been blocked.
The outages have in recent days led to growing concern that French and regional supplies of fuels, in particular diesel, could tighten in the coming weeks. In a sign of these concerns, the spread between the prompt and second month ICE low-sulfur diesel contracts rose on Monday to a premium, known as a backwardation, of USD35.25 a barrel, its highest since November 2022.
The profit margin for refining crude oil into diesel has jumped by nearly 40% over the past month. That followed weeks of rising inventories in northwest Europe as traders rushed to fill storage tanks in the run-up to a Feb. 5 EU ban on Russian fuel imports.
"The diesel market flipped from feeling long and heavy to short and very backward," one trader said. France's diesel and gasoil imports have dropped to 173,000 barrels per day (bpd) so far this month, down 50% from February and from March 2022, preliminary data from analytics group Kpler show.
In the absence of Russian diesel supplies, Europe has sharply increased imports from Asia, the Middle East and the United States in recent months. Diesel supply in the region is expected to tighten significantly by April, three trading sources said.
We remind, China still added more crude oil to inventories in the first two months of the year, despite lower imports and higher refinery processing rates. About 270,000 barrels per day (bpd) of crude was added to commercial or strategic inventories over January and February, according to calculations based on official data. This was down from the 1.19 million bpd in December and the 740,000 bpd for 2022 as a whole.