The price of key petroleum fuels soared on Monday as markets opened after the Iran conflict escalated over the weekend, with the jump in diesel futures prices outpacing the surge in crude prices as supply from the Middle East is in disarray.
Gasoil, or diesel, faces the most acute risk to near-term fuel supply, according to estimates by Kpler.
As a result of disrupted shipments out of the Middle East due to the de facto closure of the Strait of Hormuz, fuel prices soared by double digits early on Monday.
Gasoil (diesel) futures prices on the Intercontinental Exchange hit a two-year high, soaring by 17% at opening. The diesel price surge even beat the 13% jump in Brent Crude prices, which topped $80 per barrel in early Asian trade on Monday.
Diesel faces the most acute physical pressure in the near term, according to Kpler’s Amena Bakr, due to several reasons. These include the fact that gasoil is the primary fuel for military logistics, it is regionally concentrated in supply, and it is the hardest petroleum product to replace with alternative supply quickly.
The immediate impact of the conflict on gasoil will be very high, Kpler reckons, as cracks will gap sharply this week. The limited near-term alternatives makes the diesel supply risk even more acute than the risks for crude oil, jet fuel, and LNG.
Jet fuel and crude oil face high imminent impact, but diesel—due to a lack of sufficient alternative supply – should see “very high” immediate impact, according to Kpler, although diesel has the smallest share of supply passing through the Strait of Hormuz.
A total of 10.3% of global seaborne gasoil trade transits the Strait, as well as 19.4% of jet fuel and 16% of gasoline and naphtha trade by sea, Kpler’s analysis showed.
“Any meaningful closure - or even a sustained de facto closure driven by insurance withdrawal - would trigger supply shocks across multiple commodity classes simultaneously,” Kpler’s Bakr wrote.
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