European diesel margins hit record $74.66 as refinery attacks mount

European refiners are reaping record profits as attacks on oil refineries in the Middle East and Russia tighten fuel supply, even with crude oil at around $90 a barrel — well below 2008's record of $147.

"The market shows that refining capacity is now as significant a problem as crude oil scarcity, if not a greater one," Jeffrey Baird, founder of investment firm Merritt Point Partners, said.

The premium that European low-sulphur gasoil futures command over crude oil — effectively capturing the profit margin for turning crude into diesel — extended its all-time high to $74.66 a barrel on Thursday, LSEG data shows. Gasoline refining margins have also hit multiyear highs, with European benchmark Eurobob gasoline's premium to Brent futures at $42.21 a barrel on Wednesday, near the four-year high of $44.94 touched on July 17. Jet fuel refining margins remained above $80 a barrel on July 29, though down from their all-time high of almost $109 in March.

The supply crunch is rippling through the global economy, raising costs for consumers and businesses. Europe faces a shortfall of 833,000 barrels a day of middle distillates — diesel and jet fuel — in the third quarter, according to consultancy Energy Aspects. Russia's diesel export ban, imposed after Ukrainian drone attacks damaged refineries, is expected to extend into August, while Saudi Arabia's 400,000 barrel-a-day Jizan refinery remains shut after a July 27 attack by Yemen's Houthis.

Saudi Arabia's Jizan refinery had exported more than 200,000 barrels a day of fuels over the past three months, with diesel and gasoil as the main products, according to data from analytics firm Kpler. Parts of Kuwait's 615,000 barrel-a-day Al-Zour refinery, another major diesel producer, have also shut down due to a power cut. In Russia, Lukoil's Perm refinery, with a capacity of approximately 260,000 barrels a day, shut one of its crude distillation units on Thursday after a drone attack, the latest in a series of Ukrainian strikes on Russian refining capacity.

India's Reliance Industries has stepped in to help fill the gap, ramping up diesel exports to Europe to between 4 million and 5 million barrels from its Jamnagar site in July, according to Kpler and Vortexa data. That marks the highest level in 10 months and a return to volumes seen before the U.S.-Iran war began. However, sustaining these flows into August will require Europe to outbid Asian buyers for the same cargoes, said James Noel-Beswick, head of commodities at Sparta Commodities. Freight costs of more than $5 million for a Long-Range 2 tanker from India's west coast to Europe, or about $55 a ton, add to the economics.

The east-west spread — the difference between ICE gasoil front-month prices and Asia swaps — widened to discounts of nearly $140 a ton in the past two trading sessions, from about $80 a ton in the first four weeks of July, LSEG data shows. Asian diesel margins have strengthened to four-month highs of $77 a barrel, with trading sentiment supported by tightness in markets west of Suez. India's diesel exports to Brazil are also on track to hit an 11-month high of 2.8 million barrels, Kpler data shows, as Russian exports to Brazil fell to their lowest in nearly four years.

The last time refining margins reached such extreme levels was during the early stages of the Russia-Ukraine conflict in 2022, when sanctions reshaped global fuel trade flows. The current wave of attacks — spanning the Middle East, Russia and Ukraine — has taken out a growing number of major plants that convert crude into usable fuels, creating a bottleneck that crude oil supply alone cannot resolve. With no immediate end to the hostilities in sight and peak summer driving demand still underway, European fuel prices are likely to remain elevated, keeping inflation pressure on the region's economy.

This article is for informational purposes only and does not constitute investment advice.