Diesel Prices Are Rallying Again To Start The Week As The Potential For Supply Disruptions Remains High

Diesel prices are rallying again to start the week as the potential for supply disruptions remains high, while crude oil and gasoline prices are ticking modestly lower following another bearish outlook for global demand.  

Threats of a new potential strike at a major European refinery and new mandated restrictions on Chinese diesel exports may further stretch the struggling supply network for distillates and seem to be contributing to the early strength in ULSD.

OPEC’s monthly report decreased the cartel’s global demand outlook for 2023 due to concerns over China’s COVID restrictions and a generally weak economic outlook. This report did not show the US economy dipping into a recession in the coming year as the EIA’s monthly forecast did last week.  OPEC’s analysts predict that global refinery runs will increase in November after heavy maintenance in October, which should help alleviate some of the tight diesel supplies in the Western hemisphere although tight shipping markets will limit the options for resupply.

The CFTC’s commitments of traders report is delayed a day for NYMEX contracts due to Veteran’s day. We did see money managers increase their net-length in Brent crude to the highest level of the year last week as new long position outpaced an increase in new shorts. Despite the recent weekly increases, the net length remains well below levels we were accustomed to seeing in the previous 5 years. Gasoil contracts (the European ULSD equivalent) saw a small decrease in net length held by large speculators thanks to a healthy increase in new short bets.

Baker Hughes reported an increase of 9 oil rigs drilling in the US last week while the natural gas rig count held steady. The Permian basin, which accounts for more than half of the active rigs in the country, added 4 rigs on the week, while Louisiana seems to be taking advantage of a year that they didn’t get battered by hurricanes and added 6 rigs last week. 

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