Diesel prices hit records as refinery shortages bite

Diesel prices have hit records in the United States and France as shortages of refined fuels add to crude supply disruptions from the Middle East and Ukraine conflicts.

The AAA automobile association said diesel averaged a record $6.52 per gallon in the United States on Monday. In France, diesel reached a record average 2.41 euros per litre, about $10.40 a gallon, on Sunday, according to an AFP analysis.

French officials recently estimated that the global market is missing about 10 million barrels of crude oil per day. The global economy had been consuming about 105 million barrels per day before the Middle East conflict broke out.

Iran's blocking of the Strait of Hormuz initially shut in around 20 million barrels per day, while some Saudi exports were shifted to the Red Sea and some tanker transits resumed. The source said Saudi exports through the Red Sea are now down as Iranian-backed Houthis have gained control of the Bab al-Mandab Strait.

The International Energy Agency said consumption has dropped by more than one million barrels per day, with China in particular reducing crude imports and shifting to other energy sources. The IEA estimated that observed global oil stocks are down by about 507 million barrels from before the war, a figure that does not include countries such as China that do not report reserve data.

The pressure on diesel is also coming from refining constraints. Nobel Prize-winning economist Paul Krugman wrote that the current energy crisis is largely a crisis in petroleum products refined from crude oil, rather than in petroleum itself, and that its proximate cause is a global shortage of refining capacity.

Western nations have banned imports of Russian petroleum products, and Russia has introduced fuel export bans after Ukrainian attacks damaged its refineries. Gulf nations are also major exporters of refined petroleum products, and Iranians have targeted refineries in the region.

Janiv Shah, vice president at consultancy Rystad Energy, said diesel prices have risen across all regions because the disruption is global, but that Europe is particularly exposed because it is a net importer of the fuel.

Shah said there are few short-term options, with some unused refining capacity on paper but little that can be activated quickly and supplied with the right crude. He said a resumption of oil shipments through the Strait of Hormuz would probably be the quickest way to bring down prices because it would supply Asian refineries.

Toril Bosoni, head of the IEA's oil industry and markets division, warned that if Gulf supplies remain constrained in the coming months and commercial inventories keep depleting rapidly, higher prices and further demand reductions may be needed to close the supply-demand gap.

Shah said higher prices would help reduce diesel consumption, but only to a limited extent, because trucking, agriculture, construction and industry have few immediate alternatives.