The looming diesel crisis

Diesel is the lifeblood of industry, and Russia’s exports of crude oil, semi-finished diesel, and finished diesel hold extraordinary significance for refining industries and diesel markets in Europe and the United States. Due to sanctions on Russian crude and refined/semi-refined petroleum products, diesel has long been a high-risk commodity—capable of triggering a chain reaction across the entire industrial chain. Yet the diesel crisis only began to materialize gradually eight months into the Russia-Ukraine war. For diesel markets—and, to some extent, natural gas markets—the key region to watch is not Europe, but the U.S. East Coast. After Europe excluded Russian supplies, imports of refined products (and LNG) from the U.S. East Coast became critically important for Europe. Should prices surge and supply tighten on the U.S. East Coast—potentially prompting the U.S. government to impose export restrictions—Europe’s nightmare would begin. Diesel export prices from the U.S. East Coast are soaring: U.S. refiners are happily selling premium-priced diesel to their ‘European allies.’ In line with market principles, domestic diesel prices on the U.S. East Coast are also surging. U.S. refineries are enjoying the highest diesel margins ever recorded: the diesel crack spread—the profit from converting one barrel of crude oil into diesel—has hit a record $86.50 per barrel, up approximately 450% year-on-year.

Wall Street sounds the alarm: A commodities storm is coming!

De-globalization is accelerating rapidly: In the era of globalization, production occurred where resource costs were lowest; goods were shipped to where demand was greatest; and inventories were shared globally—surplus regions supplied shortages elsewhere. The world relied on low-cost cross-border logistics, free trade, and transnational investment to smooth out supply gaps and suppress commodity prices. Today, trade barriers, export controls, and localization of critical minerals have become the norm. The United States, Europe, China, and Japan have all formulated their own national strategies for critical minerals—‘security,’ ‘control,’ and ‘self-reliance’ have replaced ‘efficiency.’ Policy uncertainty has risen sharply across countries. Western governments have already seized Russian assets and repeatedly used pretexts to expropriate Chinese investments. Mining and oil companies now hesitate to commit large-scale, long-term capital expenditures—and approach cross-border investment with extreme caution. Insufficient new capacity means inadequate buffers, rendering markets increasingly sensitive: even minor disturbances trigger violent price swings. Supply chains are being forcibly restructured with built-in redundancy—driving up costs across the entire value chain and demanding more physical inventory. Meanwhile, the African Union plans to establish a mineral resources alliance; four Latin American countries aim to form a copper-lithium alliance; and multiple nations are simultaneously adopting policies such as mandatory state ownership stakes, bans on raw mineral exports, and quota reductions—raising repeated red flags over the stable supply of physical resources! Geopolitical conflicts ignite explosive disruptions: If de-globalization is a slow-acting knife—gradually eroding supply resilience while increasing demand for physical goods—geopolitical conflict is the fuse that directly detonates ‘black swan’ bombs disrupting production and transportation. A U.S.-Iran war would close the Strait of Hormuz—not only the world’s energy chokepoint, handling 25% of global seaborne oil trade and 20% of global LNG shipments, but also controlling 32% of global ammonia supply, 33% of global seaborne urea, 45% of global sulfur exports, 31–45% of global seaborne methanol, 25% of global polyethylene/polypropylene, 50% of global diammonium phosphate (DAP)/compound fertilizer shipments, 30% of global naphtha, and 11.8% of global aluminum electrolysis—directly altering supply-demand balances for numerous commodities! Moreover, the ‘splash damage’ from such ‘black swan’ events is enormous. Houthi militants in Yemen have blockaded Saudi Arabia in the Red Sea; the Russia-Ukraine war has also shifted tactics—Ukraine uses long-range drones to strike Russian refineries and logistics hubs, while Russia blocks Ukrainian ports, halting grain exports. Refineries in the Middle East and Ukraine continue to be bombed, straining global refining capacity and sending refined product margins skyrocketing! Goldman Sachs estimates that current global refinery shutdowns exceed seasonal averages by 60%. The American Petroleum Institute estimates that global daily crude processing has declined by roughly 5 million barrels—about 5% of total global refining capacity. On September 1, the U.S. diesel refining margin (diesel crack spread) approached $107 per barrel—the highest level ever recorded. This figure typically stands at only around $20–$30. Former President Trump urgently convened top U.S. refining executives at the White House, pledging environmental waivers for small refineries and urging firms to expand capacity. Ocean freight runs on diesel; long-haul road transport burns diesel; agricultural and industrial machinery relies on diesel; and diesel even fuels winter heating! The production and transportation of commodities—even energy itself—depend fundamentally on diesel. For example, reduced Russian diesel exports have left Mongolia short of diesel, preventing coal transportation from Mongolia to China—and thereby triggering a sharp rise in coking coal prices. Soaring diesel costs inevitably push up the costs of energy, minerals, and agricultural commodities!

'From liabilities to goldmines': refineries eye record profits from diesel shortage

just now

Western refineries report record profits amid a global diesel shortage expected to persist until 2027 per the IEA. Major firms like TotalEnergies and Shell capitalize on high margins while supply constraints drive up costs across the global economy.

theguardian

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