European Diesel Margins Approach Record Highs Amid Mideast Shipping Disruptions

European diesel refining margins climbed on Monday, trading close to all-time highs as significant supply disruptions in the Middle East rattled the market. The premium for low-sulphur gasoil futures over Brent crude futures stood at $75 per barrel at 1618 GMT, according to market data, underscoring severe tightness in the market for the transport and industrial fuel.

Geopolitical Chokepoints

The primary driver behind the surge is a dramatic slowdown in commercial shipping through the Strait of Hormuz, a critical artery for global oil trade. The disruption follows recent attacks on tankers in the region and stalled U.S.-Iran negotiations.

• Ship-tracking data from Kpler showed a stark drop in traffic over the weekend.
• Just five commodity vessels transited the strait on Saturday, with none registered for Sunday.
• This compares to a total of 31 vessels during the previous weekend, highlighting the scale of the slowdown.

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Sanctions and Supply Fears

Adding to supply concerns, the market is also watching for potential new U.S. sanctions against China. According to TP ICAP analyst Scott Shelton, measures aimed at curbing China's oil imports from India could further "worsen the diesel crisis."

These combined factors are tightening the supply of middle distillates, which include diesel, heating oil, and jet fuel. Persistently high diesel margins can translate directly into higher transportation costs for goods, potentially contributing to broader inflationary pressures across the economy. The situation highlights the market's sensitivity to geopolitical risks in key global supply chains.