Circle K: European diesel imports in a persistent deficit

TALLINN - The four-month-long US-Iran conflict has pushed European diesel reserves to a four-year low, with Europe's access to supplies from the Persian Gulf region virtually cut off, according to Circle K. Meanwhile, rising diesel fuel prices in Europe have significantly reduced demand.

The global market price of diesel fuel has risen by 32 percent over the last three weeks. Due to the Middle East conflict ongoing since March, European diesel prices have been volatile, reacting to developments in the region.

"Due to the military conflict, Europe has lost virtually all access to supplies from the Persian Gulf region. As a result, we are facing a persistent four-month diesel import deficit, which has brought diesel inventories in the Amsterdam-Rotterdam-Antwerp (ARA) port area to a four-year low," commented Indrek Sassi, Head of Fuel Pricing at Circle K.

At the same time, demand for diesel in Europe has fallen sharply, which has helped to reduce the import shortfall. Germany's demand in March-April was nearly 15 percent lower than a year ago, while Italy and France consumed 12-13 percent less in May compared to the previous year. This decrease in demand is driven by both the rise in diesel prices, which curbs consumption, and an accelerated trend among European consumers of switching from diesel cars to gasoline, electric, or hybrid vehicles.

"From a supply perspective, the European diesel situation is uncertain, but not yet a crisis. Europe remains heavily dependent on imports, and pressure could mount during the autumn refinery maintenance period and with seasonal demand from the agricultural sector. We won't physically run out of diesel, but its price could react sharply to any market driver," Sassi explained.

Europe has largely compensated for the near-total loss of diesel imports from the Persian Gulf by sourcing diesel and heating oil from the United States and transporting it via the Red Sea. In addition to the US-Iran conflict, global diesel prices are also influenced by threats from Iran-backed Houthi rebels in Yemen to impose a naval blockade on Saudi Arabia. While the Houthis could theoretically disrupt traffic through the Bab el-Mandeb strait towards Asia, this threat does not directly endanger European supplies, as they travel from the Red Sea to Europe via the Suez Canal.

Uncertainty also continues to roil the global oil market. In their latest forecast, Goldman Sachs analysts warn that the price of crude oil could climb to $120 per barrel by the end of the year if the military conflict in the Middle East escalates and the Strait of Hormuz is subsequently closed for an extended period.