The stalemate of the war in the Middle East and the fact that Saudi Arabia had to shut a key oil pipeline after an Iranian attack are pushing oil reserves to the limit, but diesel reserves especially are being squeezed.
The price of Brent crude is now about 45% higher than before the war erupted between the United States, Israel, and Iran. But the International Energy Agency (IEA) is clear that the situation is not good, especially with diesel: “The rise in crude futures […] pales in comparison with that of refined products, where market tightness is now more acute”.
Lower Reserves, Less Production, Higher Prices
Another key pipeline, closed. Saudi Arabia had to shut the East-West pipeline a few days ago after drones launched from Iraq damaged it. It is an important crude supply route, an alternative to the Strait of Hormuz, and it carries 7 million barrels per day. Moreover, the report notes that volumes of oil on ships were reduced by 65 million barrels due to new attacks on tanker traffic leaving the Middle East.
The war between Russia and Ukraine also plays its part. Attacks on key energy infrastructure in Russia, such as refineries, are reducing exports to the point that Donald Trump has called for a ceasefire in Ukraine. It should be noted that exports from Gulf countries and Russia account for 45% of all global diesel maritime trade: nearly half.
The problem isn’t crude oil, it’s refined products. Experts know that the situation is highly uncertain regarding what will happen to diesel reserves. As warned by the IEA in its latest report, diesel, which accounts for almost 30% of global demand, saw U.S. prices exceed $200 per barrel in early September, about 94% above pre-war levels, with Europe and Asia very close behind.
Chart: DieselGasoline.com
Exports of refined products and LPG remain nearly 60%, or 3.7 million barrels per day, below February levels, and refineries are operating at the limit. “With dwindling reserves and the global refining system stretched to its limit, the need to move toward a resolution of the conflict in the Middle East is greater than ever,” the agency warned.
Prices, sky-high. Although Spain currently supplies the second-cheapest diesel in the EU, we see daily that the 2-euro-per-liter barrier has been breached. In October the extraordinary temporary tax exemption that, in theory, reduces diesel by 20 cents per liter will end.
