Europe is facing a large‑scale diesel fuel deficit. Morgan Stanley estimates that, due to the simultaneous occurrence of several logistical and geopolitical shocks, regional inventories will fall to multi‑year lows by year end.
Global energy markets are contracting under the weight of a complex set of problems. A key role was played by the outbreak of conflict between the US and Iran, which disrupted logistics in the Strait of Hormuz. Attacks on Russian refineries and Moscow’s ban on diesel exports delivered an additional blow to supply. Beijing also contributed: lower refinery throughput in China removed surplus product from the global system that under normal conditions could have flowed to Western markets.
As a result, the diesel refining margin, or crack spread, in Northwest Europe has soared to record levels. Analysts stress that the main bottleneck now is refining capacity rather than a shortage of crude oil. In the crude market, the situation is paradoxically the opposite: unsold parcels of African oil and a bearish contango are being recorded.
Morgan Stanley calculates that European stocks will begin to fall steadily from August. By November, diesel inventories in tanks may drop to 299 million barrels, the weakest level for this time of year at least since 2015.
The investment bank, however, warns traders against aggressive buying. Morgan Stanley says that much of the current tension and the impending shortage are already fully priced into markets, and investors should not chase the market betting on further rises in the price.
