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Diesel Refining Margins Fall 7% on Rising Russian Supply and French Reserve Release
Diesel refining profit margins fell sharply on Tuesday, pressured by signs of rising supply from Russia and a planned release of strategic reserves in France. The key benchmark for diesel profitability dropped by approximately 7%, signaling an easing in the tight market for middle distillates.
Crack Spreads Weaken
The premium for low-sulphur gasoil futures over Brent crude, a key indicator of refinery profitability, declined by $5.60 to settle at $73.90 per barrel by 1706 GMT, according to market data. This so-called "crack spread" reflects the value refiners can capture by processing a barrel of crude oil into refined products like diesel. The significant one-day drop points to weakening market fundamentals for the fuel.
Russian Output Rebounds
A primary factor contributing to the decline is a reported recovery in Russian refining operations. Three industry sources indicated that Russian oil refineries increased their crude processing by 25% in the second half of October compared to the beginning of the month.
AdThis rebound in output reportedly follows a cessation of drone attacks that had previously hampered the facilities' production capabilities, allowing more product to flow to the market.
France to Tap Strategic Reserves
Adding to supply expectations, the French government announced a plan to release 10 million barrels of diesel from its strategic reserves. The release is scheduled to begin on November 1 as a measure to combat high prices at the pump.
A spokesperson for the fuel lobby Ufip stated Tuesday that under the new government program, fuel retailers will not be required to replace the diesel drawn from the country's reserves, ensuring the full volume enters the consumer market.
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