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Middle Eastern Conflict Fuels Diesel Price Surge
Traders and analysts raise concerns over surging diesel prices, fearing they might hamper global economic activity. The ongoing conflict in the Middle East is impacting fuel supplies, crucial for various sectors.
Supply Shortages and Geopolitical Tensions
Diesel has struggled with supply issues for years. Ukrainian strikes on Russian refineries and Western sanctions on Moscow have contributed significantly. Now, tensions involving Israel, the U.S., and Iran exacerbate these challenges. Tehran’s disruption of maritime traffic in the Strait of Hormuz is alarming. This critical route handles 10% to 20% of the world’s seaborne diesel supply.
Energy economist Philip Verleger notes that disruptions here could slash diesel supply by 3 to 4 million barrels per day. That’s about 5% to 12% of total global consumption. He warns that another 500,000 barrels per day might vanish due to Middle Eastern export bans.
“By closing the Strait, Iran has cut off Middle Eastern exports of distillate-rich crude oil, jet fuel, and diesel. In chess terms, it’s a checkmate,” Verleger remarked.
Economic Ramifications
The rise in diesel prices threatens economic stability globally. Diesel fuels essential sectors like transport, agriculture, mining, and industrial activities. Shohrukh Zokhiriddinov, founder of Nitroil Trading, highlights its critical role.
“$Transportation costs are up, affecting food and consumer prices,” said Dean Leulkin, CEO of Cardiff. If prices persist, a second wave of cost-push inflation is likely. The impacts are already evident, with U.S. farmers potentially delaying planting due to high diesel costs.
Shaya Hosseinzadeh of Onyx Point Global Management warns that sustained fuel price hikes could lead to stagflation. This occurs when goods become costlier to move and produce, squeezing consumers.
Diesel Prices: A Global Perspective
Since the conflict began, diesel prices have outpaced oil and gasoline. In Asia, major importers of Middle Eastern fuel witness margins for 10ppm sulfur diesel hovering around $33 per barrel. This is nearly $12 higher than pre-war levels. On March 4, it peaked at a three-and-a-half-year high of $48.
In Europe, the scenario is similar. Ultra-Low Sulfur Diesel (ULSD) prices in the Amsterdam-Rotterdam-Antwerp hub surged almost 55% since February 27. They now stand at approximately $1,165 per ton, according to Quantum Commodity Intelligence.
Europe’s Dependency
Europe’s dependency on Middle Eastern imports is under the spotlight. With efforts to reduce reliance on Russian supplies, the region is feeling the pinch. Alex Hodes at StoneX highlights this connection. Tom Kloza, chief consultant at Gulf Oil, shares that diesel’s premium over crude oil has soared. Margins are now between $30 and $65 per barrel, occasionally even higher.
Future Outlook
If the Strait of Hormuz remains closed, retail diesel prices might nearly double. Philip Verleger emphasises the stakes, with U.S. diesel futures already rising more than $28 per barrel from late February to mid-March.
The situation demands keen monitoring, understanding the interplay of geopolitics and economics is vital to gauge future impacts.
For more details, you can read the original Reuters article.
