Wall Street Warns About "Perfect Storm" Diesel Crunch:
- Goldman's Daan Struyven Shows Global Diesel Exports Crashing
- Citi's Anthony Yuen Warns: Global Diesel Inventories "Below 5YR Minimum"
- BofA's Francisco Blanch Warns: "Diesel's Perfect Summer Storm" Unfolding
- Jefferies' Sam Burwell Warns: Hormuz Shock "Manifesting Itself In Cracks, Not Crude"
Brent crude remains hostage to daily geopolitical developments in the Gulf region more than five months into the conflict, with muted traffic through the Strait of Hormuz (read the latest US-Iran wrap) constraining tanker flows and driving refined-product markets to new, dire extremes as they become the focal point of the energy crisis.
Hormuz traffic has stabilized at about 10 crossings a day, down from 30 to 40 before the latest escalation. Liquids flows are averaging roughly 4 million barrels a day, well below public estimates of 9 million, according to HSBC analysts.
We earlier cited Jefferies analyst Sam Burwell, who warned clients:
"What this all shows is that global oil-market tightness is manifesting itself in cracks, not crude, at least for now. Wide cracks suggest refining runs should remain strong, however, which is positive for crude.
By lunchtime Thursday, the front-month US diesel crack spread (HOCL1 on the Terminal) had exceeded the $97 levelreached in mid-March, when the US-Iran conflict was just three weeks old, and was closing in on $100. That signals extreme tightness in diesel.
Francisco Blanch, head of commodities at Bank of America, warned clients in a note earlier titled "Diesel's Perfect Summer Storm" that the industrial fuel is "materially disrupted in 3 of 4 major regions" around the world.
As we recently warned (see report: The crude reality of oil markets), supply disruptions are amplifying the squeeze on petroleum markets.
Three of the world's four major refining hubs remain impaired for one reason or another.
First, the closure of the Strait of Hormuz and adjacent military activity has reduced Middle East fuel exports, with the recent Houthi strike on Saudi Arabia's Jazan refinery being the latest example.
Second, record Russian refining disruptions following Ukrainian strikes have removed significant volumes from the global diesel pool.
Third, fearful of potential domestic shortages, China has yet to restart petroleum product exports to the Asia region. As such, Europe has increasingly relied on record US exports to fill the gap.
Yet those flows are drawing down already tight US inventories, the only major hub open for business, creating a global competition for fuel that is pushing diesel cracks back toward record seasonal highs.
Beyond Ukraine drone-striking Russian energy assets, Moscow has decided to ban diesel exports; yet again, more evidence of dwindling global supplies:
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