Vitol CEO: diesel stays tight through winter with nearly 4 million barrels a day of supply offline
Diesel supply looks set to stay tight into next year, refining and commodity trading executives told Reuters, and for jobbers that means the wholesale squeeze at the rack isn't easing before spring. The shortage traces to barrels that aren't there. Russell Hardy, who runs Vitol, put a number on it at the Asia-Pacific Petroleum conference. "There's really a shortage of products because we're missing 2 million barrels a day from Russia, and we're missing nearly 2 million barrels a day from the Middle East," he said.
Why it hits the rack
Nearly 4 million barrels a day of missing product is a refining shortfall. The world has the oil. What it lacks is enough refining capacity to turn it into diesel fast enough to cover for the Russian and Middle Eastern plants that aren't running. Distillate is where that shows first, because diesel is the tightest cut in the barrel and the one with the least slack heading into heating season.
For a US marketer, tight global distillate pulls on your supply two ways. Export demand competes for Gulf Coast barrels, and thin inventory means less cushion when a refinery hiccups. When that happens, branded contract volume gets served first and spot or unbranded buyers wait. If you run unbranded, this is the winter to know your second and third supply points before you need them.
The China piece
China's crude buying has rebounded while its fuel exports jumped 29%. More Chinese product on the water is the one thing that could take some pressure off a tight market, so watch where those barrels land. If they stay in Asia, they do nothing for a jobber in Ohio. If they move west, they compete with the same Atlantic Basin supply your terminal draws from.
None of this calls a price. Hardy and the traders are describing a supply gap, not a forecast, and a warm winter or a fast refinery restart could loosen things quickly.
What to watch
Distillate inventory reports into the fall, and whether US refiners hold run rates high through turnaround season instead of pulling plants down. Watch allocation notices from your suppliers, since a terminal starts rationing before the rack number moves. And keep an eye on where China's extra exports go, because that is the swing that could ease a tight market or leave it tight.