Stocks of diesel fuel in northwestern Europe will reach their lowest level in at least 12 years in early spring 2023, according to a forecast by consultancy Wood Mackenzie Ltd, cited by Bloomberg.
Stocks are expected to rise in December and January before a sharp decline follows. Inventories for March next year are expected to be the lowest on record for any month since 2011, Woodmac said.
With the European Union ceasing deliveries of Russian fuel by sea in early February, the continent’s already difficult supply situation is likely to worsen. Inventories are a vital buffer against such supply disruptions, and once they are depleted, there will be greater potential for market volatility.
The lower inventories contributed to higher margins for oil refineries, prompting European operators to work hard, said James Burley, Woodmac’s chief analyst, according to BNR. As a result, the consulting firm expects daily crude oil processing in northwestern Europe to increase 420,000 barrels this month to 6.14 million.
“We expect increased production to continue to be supported by strong net cash margins and we expect gas / diesel inventories to reach nearly three million barrels by the end of December,” Burley added.
As Russia is still the largest external supplier of diesel fuel via EU ships, a sharp decline in stocks is expected at the end of winter.
Part of the problem with diesel availability in both Europe and the US lies in the structure of the futures markets. The diesel futures chart on the ICE commodity exchange shows that immediate delivery is more expensive than the same fuel delivered later. This in turn discourages hoarding as traders can likely sell for a better (higher) price today than they can realize in the future. This trend has weakened in recent days but remains historically strong.
