The European diesel market is showing signs of tightening.
The European diesel market is showing signs of tightening as diesel's premium to crude oil reaches a two-month high. The diesel crack spread (which measures the profitability of converting crude oil into fuel) rose to around $21 per barrel on Friday, the highest intra-day level since April 15, up about 60 cents from Thursday's high. Spot prices have also risen relative to futures prices, indicating that traders believe the market is tightening.
Diesel crack spreads rose to a two-month high.
The diesel market in Europe is important because it is a key component of refining demand on the continent. Europe is also a destination for diesel supplies from other parts of the world.
James Noel-Beswick, an analyst at Sparta Commodities, said that traders in the region are finding it unprofitable to source crude oil directly from the US.
He said that the upward trend in European diesel prices might continue until transatlantic trade becomes profitable. He added that diesel from the Middle East and India's west coast tends to flow to Asia rather than Europe.
Additionally, the Russian government has reportedly resumed discussing the idea of temporarily banning diesel exports. The government hopes to prevent diesel from possibly being exported to 'non-producers,' such as traders, oil depots, and other participants in the automotive fuel market, as dealers sell diesel originally intended for the domestic market abroad.
Meanwhile, benchmark crude oil prices are on track to post their best weekly performance in over two months as the market remains optimistic about the outlook for oil and fuel demand. As of press time, Brent crude and WTI crude have both risen more than 4% this week.