Diesel Retreats Quietly, Replacement Costs Resist Because of Higher Freight
Monday’s diesel correction has reduced prices without resolving Europe’s supply problem. Afternoon gasoil traded at $1,432/mt, down $77.25, while Brent stood around $100/bbl. Yet last week’s CIF NWE diesel crack remained at $106.19/bbl after reaching $114.82, and ARA diesel inventories were still 23% below a year earlier. The US–Europe arbitrage was reported largely closed with HOGO around $0.31/gal, despite US refinery utilisation near 98%. Mediterranean exposure is particularly important: approximately 70% of August’s Yanbu diesel shipments to Europe went there, while the Mediterranean premium over NWE widened to $18.75/mt. Expectations of restored Saudi pipeline flows and improved Hormuz movements help explain the sell-off, but those stock deficits indicate that physical relief remains incomplete. For biofuel producers, the immediate problem is that gasoil fell $77.25/mt while Monday’s UCO indications moved only $5/mt in either direction. That puts pressure on production economics unless higher biofuel premiums or credits compensate for the weaker diesel price which in contradictioin to inventory levels and actual exports.
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