It is an additional layer added to the mille-feuille of the major energy crisis that Europe is currently going through. and, beyond, the world as a whole. According to Bloomberg, and despite a sharp drop in the price of oil in recent days, our continent is heading straight for a shortage of diesel and its derivativesespecially fuel oil, while winter is already beginning to show the end of its cold threats in people’s minds.
Diesel is essential for the functioning of the economies of North-West Europe. For part of its car fleet, of course, but also for heating (fuel oil) or to supply a number of industries and factories with energy.
However, the stock on which the continent sits is dangerously low, even as supplies of electricity, gas, coal and oil are not not guaranteedin a context of international tensions over energy, technical difficulties nuclear, in France in particularRussia’s war in Ukraine and resulting sanctions and embargoes.
European energy stress is such that London begins to prepare for blackouts and blackouts in the depths of winter and – a curious example among other more classic anxieties – that German crematoriums worry.
Balance your offset
On diesel in particular, data from Wood Mackenzie shows that European reserves are at their lowest level since 2011 – and even since 2008 for the important Amsterdam-Rotterdam-Antwerp hub, according to Insights Global.
These stocks therefore constitute a meager safety cushion, while the continent prepares for the worst and for multiple other shortages. “We are seeing similar demand to usual, but we are starting from lower”notes analyst James Burleigh.
Bloomberg notes that supply is tight, despite an increase in global refining capacity. One of the problems that Europe must face is in particular the dangerously low level of the Rhine, through which fuel passes to reach some of the continental hubs.
Another problem: the tendencies do not push the stockkeepers to store, because ofa phenomenon called “backwardation”or “offset”when the price of a futures contract is lower than the spot price.
In short: traders have no interest in building up stocks, since the good they are trading will lose value in the coming months. Winter is coming, and it is therefore likely to be particularly harsh for Europe.
OIL MARKET: The backwardation in the European diesel market is monstrously large. And getting worse.
The chart is 2nd-to-3rd month gas-oil futures spread, approaching the all-time high set earlier this month when spreads blew-up. All points to an extremely tight market | #Awaiting pic.twitter.com/UVO9jJmZBS
– Javier Blas (@JavierBlas) March 23, 2022