The U.S. diesel crack, a key measure of refining profitability, hit an all-time high of $102.20 a barrel on Monday as global supply disruptions from the wars in Iran and Ukraine run into peak agricultural consumption season.
Measured as the premium of U.S. diesel futures over U.S. West Texas Intermediate crude oil futures , the U.S. diesel crack was trading at $99.82 a barrel, up 2.4% from Friday, as of 11:56 a.m. ET. The crack has hit new intraday record highs in five of the last six sessions, reflecting growing concerns about fuel availability as fresh attacks on Middle Eastern refineries added to existing supply disruptions.
Global refinery crude throughput averaged 80.9 million barrels per day in July, down about 5 million bpd from a year ago, the International Energy Agency said in a monthly report last week.
The most immediate hit from surging diesel cracks is to farmers who need the fuel to power tractors, harvesters and other equipment, during the ongoing harvest season in the Northern Hemisphere and the planting season in the Southern Hemisphere. Longer-term, it could hit most other sectors of the global economy as the fuel has wide-ranging uses from manufacturing to heavy transportation and power generation in parts of the world.
Global diesel stockpiles have been under immense pressure due to the ongoing wars, with both Russia and the Middle East among key suppliers of the fuel. Middle Eastern exports have been hit hard by disruptions to shipping through the Strait of Hormuz, while Russia has banned international sales through January due to Ukrainian attacks on its refineries.
U.S. refiners have ramped up diesel production to benefit from record high cracks, but stockpiles are still declining in the country due to strong export demand, said Shohruh Zukhritdinov, chief executive at oil trading firm NitrolOil.
U.S. distillate fuel inventories, which include diesel and heating oil, stood at 107.1 million barrels as of August 7, the lowest for this time of year since 1996, data from the Energy Information Administration showed last week.
"The U.S. is producing more diesel, not less, and yet the crack is still above $100. That tells you this is not a refinery incentive problem anymore - t is a refinery capacity and global replacement-barrel problem," Zukhritdinov said.
Diesel markets could come under further strain due to U.S. pressure on Iranian exports and threats of penalties on China for buying Iranian crude oil, said Scott Shelton, energy specialist at TP ICAP.
"The U.S.'s new policy could make it even harder for (China) to keep refinery run rates where they are and could make the diesel crisis worse," Shelton said in a note to clients.
China's July crude oil throughput was down nearly 16% from a year ago, data from the National Bureau of Statistics showed on Monday.
