International diesel prices surged this week due to attacks on refining facilities. The global fuel supply and demand were already imbalanced, and the approaching peak demand season has exacerbated market tensions with supply disruptions at the refining end. As a core industrial fuel supporting freight, agriculture, and heating, the continued rise in diesel prices will be transmitted throughout the entire industry chain, increasing overall inflationary pressure. Currently, global refineries are nearing their capacity limits, and coupled with factors such as shrinking European refining capacity and low inventories, the shortage of refined oil products may persist for an extended period.

Geopolitical shocks are disrupting the diesel market, with refining profits hitting record highs.

A series of facility attacks triggered the current surge in diesel prices, with European refining margins rising another 10% on top of already high levels. US diesel futures saw their biggest gain since July on Monday (August 10), rising 7.4% to $4.19 per gallon. Data from the American Automobile Association (AAA) shows that the average retail price of diesel across the US reached $5.32 per gallon on Tuesday (August 11), a significant increase compared to both a month and a year ago, indicating emerging cost pressures at the end-user level. Diesel is considered a fundamental energy source for the economy, widely used in logistics, agricultural production, and winter heating. Sumit Ritolia, chief analyst for refining supply and modeling at Kpler Consulting, stated this week, "The core reason for the sustained high refining margins is that the value of producing one more barrel of refined oil is far greater than the value of acquiring one more barrel of crude oil." The crack spread, a key indicator of refining profitability, has exceeded $70 per barrel, while its normal level is less than $20 per barrel, fully reflecting the scarcity of refined oil supply. To compensate for supply losses from the Middle East and Russia, global refineries are ramping up their operating rates, but there is a clear ceiling to capacity release. Sumit Ritolia stated that once refinery operating rates exceed 90% to 95%, there is virtually no buffer capacity available. ExxonMobil and Chevron are maintaining refinery operating rates at 95% to 97%, while Shell has exceeded 100%. Refineries are about to enter their routine maintenance cycles, which will cause a temporary contraction in output, likely further pushing fuel prices higher.

Regional production capacity shortages are becoming increasingly apparent, and global measures to alleviate the supply gap are limited.

Europe's structural weaknesses have further amplified the global fuel crisis. In recent years, the EU has promoted the electrification of transportation, leading to the closure of numerous domestic refineries. However, the progress of transportation electrification has fallen short of expectations, and demand for refined oil products remains strong. With domestic supply contracting, the EU is heavily reliant on imports, resulting in continuously expanding import expenditures. The market generally expects high refining margins to persist until the end of the year. Even if the situation in the Middle East eases rapidly, supply chain recovery will take time, and Russia's diesel export ban will continue until 2027. Although China has moderately relaxed its August refined oil export quotas, with some quotas even being carried over to September, it is unlikely to change the global shortage situation in the short term. As a major oil and gas exporter, the US has already seen its domestic diesel inventories fall to a 30-year low, leaving very limited room for further refined oil exports. The US Energy Information Administration previously warned that the shutdown of some crude oil production capacity in the Middle East may continue until 2027, and the supply shortage at the crude oil end will continue to be transmitted to refined oil products. The overall rise in energy costs will, on the one hand, force the development of transportation electrification; on the other hand, rising costs across various industries may, in turn, suppress consumer demand in the electric vehicle industry.

Conclusion

In summary, the current contradiction in the global energy market has shifted from a crude oil supply gap to insufficient refining capacity. The combined effects of geopolitical conflicts, refinery maintenance, and regional capacity degradation may prolong the period of high diesel prices. The rise in refined oil prices will be transmitted along the industrial chain, bringing new uncertainties to global inflation. Subsequent changes in the geopolitical situation, inventory data, and refinery maintenance schedules will continue to influence the fuel market trend. As of 13:13 Beijing time on August 13, ultra-low sulfur diesel futures at the Port of New York were trading at $4.2872 per gallon.