European Diesel Margins Drop Over 7% as Gasoil-Brent Spread Narrows

European diesel refining margins plunged by more than 7% on Monday, a direct result of a weakening premium for low-sulphur gasoil futures compared to Brent crude prices. The development signals reduced profitability for refiners producing the middle distillate fuel.

Price and Trading Activity

The key market indicator, the premium of low-sulphur gasoil futures to Brent crude, narrowed by $5.52 to settle at $70.79 per barrel by 1612 GMT, according to market data. This contraction in the spread is the primary driver behind the decline in refinery margins.

Physical market activity was limited. In the afternoon trading window, BP sold one cargo of ultra-low sulphur diesel designated for delivery to Gdynia, Poland. In the Mediterranean, no cargoes were traded despite active bidding, with TotalEnergies making the only offer.

Shifting Supply Dynamics

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The margin pressure comes amid a significant increase in supply flows into the region. According to data from analytics firm Kpler, diesel and gasoil imports into the EU-27 and the UK are forecast to average 724,000 barrels per day (bpd) in August. This represents a substantial jump from the 466,000 bpd imported in July.

The United States is the dominant source of these imports, accounting for 446,000 bpd, or more than half of the total expected volume for August.

Geopolitical Factors

Counterbalancing the rising imports, the market is also contending with a supply disruption in Russia. Two industry sources reported Monday that the Perm oil refinery, Russia's seventh-largest by volume, has halted operations. The shutdown was attributed to a fire and damage to technological units following a Ukrainian drone attack on August 21.