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Global Middle Distillate Margins Hit Fresh Highs, Vortexa Says

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Global middle distillate margins have climbed to fresh highs after renewed disruptions in the Middle East tightened supplies and raised concerns over diesel availability ahead of winter, Vortexa analyst Pamela Munger said in a Wednesday note.

Margins surged following the collapse of the US-Iran ceasefire on July 7 and Houthi attacks and threats against Saudi-linked vessels in the Red Sea on July 20, Munger said.

Europe has been the most exposed to the supply disruptions, with diesel cracks rising above $80 per barrel and jet fuel margins exceeding $70/bbl. G

asoline margins eased to about $36/bbl from $48/bbl on July 16, while strong European demand has opened arbitrage opportunities for diesel cargoes from the US Gulf Coast, Northwest Europe, the Mediterranean and Asia.

Despite the disruptions, global diesel arrivals, excluding Middle East Gulf cargoes, have remained above seasonal averages for four of the five months since the conflict began in March.

East-of-Suez clean product shipments to the Atlantic Basin have also increased for a third consecutive month, reaching their highest levels since February, driven primarily by exports from India's west coast rather than the Middle East Gulf.

Munger warned the Atlantic Basin is heading into winter with limited supply flexibility.

Continued restrictions on crude movements through the Strait of Hormuz, reduced alternative supplies from Saudi Arabia's Yanbu and policies in India and China to prioritize domestic fuel availability could further curb exports.

India recently raised its diesel export duty, while Russian seaborne diesel exports have fallen to about 260,000 barrels per day in July from 860,000 b/d in May after refinery damage cut as much as 40% of refining capacity.

Atlantic Basin refiners have been running at elevated rates, particularly in the US Gulf Coast, but a series of unplanned outages at major refineries has raised concerns over their ability to sustain maximum production.

With gasoline and diesel inventories at or below seasonal norms, Munger said the market remains vulnerable to further supply shocks.

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