(Bloomberg) — The diesel market in Europe is flashing signs of tightness as refinery halts and Red Sea disruption squeeze supplies of a fuel that helps to power the continent’s economy.
The market has been tight for a while, pressured by sanctions cutting off seaborne imports from Russia, the closure of European plants and refiners’ output of products slightly changing — partly in response to OPEC+ supply curbs. Now, traders are facing seasonal plant maintenance and attacks on Russian energy facilities as well as Red Sea disruption that has caused some freight rates to soar.
Diesel’s premium over crude has jumped to the highest for the time of year since at least 2012. As well as being an inflation booster, the situation also puts pressure on vital economic sectors such as trucking, farming and construction. Speculators have also become more bullish.
Diesel for delivery this month is also much more expensive than for later in the year, a structure known as backwardation that typically signals tightness.
“We expect to see a fall in northwest Europe diesel/gasoil stocks over the next two months,” said Emma Howsham, an analyst at Wood Mackenzie Ltd. She cited spring refinery maintenance, as well as “tight supply from key export hubs, and the Red Sea-Suez Canal disruption impact on flows into Europe.”
Diesel is the most important fuel used across the continent. Demand for diesel-type fuel in OECD Europe totaled more than 6 million barrels a day in 2021 and 2022, far outpacing other petroleum products like gasoline, according to the International Energy Agency.
Read More: Red Sea Attacks Are Helping Make Europe’s Diesel More Expensive
Relatively low imports are contributing to the supply problem. Overall shipments of diesel-type fuel into the European Union and UK in January were below both month-earlier and year-earlier levels, according to data from analytics firm Vortexa Ltd. compiled by Bloomberg.
Still, barrels from India and the Middle East continue to arrive, with many shipments going around South Africa’s Cape of Good Hope to avoid attacks by Houthi militants in the Red Sea, adding to voyage time and costs. Other suppliers, like the US and Turkey, also continue to send shipments.
Maintenance Impact
Plant maintenance is also keeping a lid on diesel supplies. Work on crude distillation units — the beating heart of an oil refinery — in Europe is reported to total 440,000 barrels a day this quarter, Howsham said. While that’s 110,000 barrels lower than last year, the lost output is still greater than if the region’s largest refinery were to suddenly shut down.
Arguably the biggest wildcard, however, is the threat of more drone attacks by Ukraine on Russian facilities. Despite Western sanctions, Russia still exports millions of barrels of diesel-type fuel, and any disruption to those flows will ripple across the global market.
Woodmac’s expectation for gasoil and diesel stockpiles to fall this month and next chimes with historical data for the EU and UK from the Joint Organisations Data Initiative.
That expected drop is predicted to take place despite Woodmac forecasting demand this quarter to fall roughly 5% from a year earlier in northwest Europe. After that, the consultancy expects inventories to recover.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
