Atlantic Basin Diesel Refining Margins Hit Record As French Strikes Drag On

Diesel refining margins in both Europe and the United States have hit all-time highs as strikes at French refineries exacerbate a global shortage of distillate fuels.

The price of diesel, heating oil and other refined products was already elevated after Russia's invasion of Ukraine and with overall capacity to produce fuel reduced by the closure of numerous refiners in the last two years.

The French strikes over workers' pay have taken up to 60% of the country's refining capacity - which yields up to 50% diesel - offline, disrupting supplies at almost a third of petrol stations and forcing the government to tap strategic reserves.

Benchmark European diesel refining margins and U.S. distillate margins hit a record high of around $77 a barrel on Monday, although they eased to around $68 on Tuesday.

The diesel margins are a culmination of planned refinery maintenance in the region being compounded by the French strikes, said Koen Wessels, lead oil products analyst at consultancy Energy Aspects.

"Every day the strikes drag on the more balances tighten and hence the chance of a sharp downward correction in cracks once supply returns wanes," Wessels said.

The French government said on Tuesday it stands ready to intervene to break the deadlock, which has dragged on for weeks.

Europe, which imports around one third of its diesel demand, was already struggling with supply as buyers shunned fuel from major supplier Russia ahead of sanctions banning the country's oil products from February.

Nonetheless, Russia remained the largest diesel exporter to Europe in September, accounting for 31% of a total of 2.9 million tonnes, according to Refintiv data.

U.S. INVENTORY PRESSURE

In the United States, political pressure is mounting for refiners to increase domestic inventories in the north east, which are near multi-decade lows, ahead of winter.

Home heating oil prices are up 56% to nearly $5 per gallon from October 2019 levels, according to data from the Energy Information Administration.

But the largest U.S. oil trade groups last week urged top officials in the Biden administration to take off the table an option of limiting fuel exports as a way to lower consumer prices.

U.S exports of distillate fuel reached a record 1.76 million barrels in September, with more than 633,000 barrels of diesel sent to Northwestern Europe, according to Refinitiv data.

The idea of limiting U.S. fuel exports was largely dismissed as unlikely by the oil industry when it first came up months ago, but the latest pushback reflects increasing concern that the administration could push ahead with restrictions.