"Everything About This Market Is Wild": European Diesel Futs Top $200 As Global Scramble Accelerates
The global tug-of-war for fuel looks set to accelerate, with traders scrambling to secure supplies even more aggressively after President Trump showed no signs of an end to hostilities (and a reopening of the Strait) any time soon.
The longer the Strait of Hormuz remains closed, the more intense the competition is likely to become. Traders have warned that Europe is at risk of diesel shortages in the coming weeks.
“Everything about this market is wild,” said Philip Jones-Lux, a senior oil analyst at energy analytics firm Sparta Commodities.
“Europe is still short of diesel, but the situation in Asia is so much more acute that prices there are pulling barrels halfway around the world.”.
Nevertheless, Europe’s diesel futures rose to the highest level since 2022, as the Iran war hits supply of the fuel that powers the global economy.
As Bloomberg reports, futures traded as high as $1,498 a ton, or more than $200 a barrel, as they surged as much as 9.7% in London.
Prices have almost doubled since the war in the Middle East started over a month ago with US and Israeli attacks on Iran, and Tehran’s retaliation resulting in an effective closure of the vital Strait of Hormuz.
As Goldman futures trader, Robert Quinn notes (pro subs can read Quinn's full note here), the onset of the Iran War forced substantial producer short covering in European Diesel.
According to Commitment of Traders, Gasoil Producer, Merchant, Processor, and User (PMPU) shorts tumbled -$13bn during February 24th - March 10th.
This marked the largest 2 week decline since Russia attempted to invade Ukraine.
But PMPU downside eventually reinitiated, albeit slowly. Over March 10th - 24th, PMPU shorts rebounded +$3.9bn.
And speculators resumed long purchases. After generally liquidating throughout the initial price rally, Managed Money, Other, and Non-Reportable bought +$1.3bn of gross longs from March 17th - 24th.
As questions surrounding the conflict's sustainability surfaced, general risk reduction ensued.
Over March 24th - April 1st, which included the administration's initial signaling for an end to the fighting, Gasoil aggregate open interest shed -$3.7bn.
Notably, 3 month implied volatility and normalized 25 delta put-call skew retraced from their respective max and min.
Thus Trump's recent vow to strike Iran "extremely hard" has conceivably prompted more speculative gross long buying and/or producer short terminations.
Europe generally produces less diesel than it consumes and relies on imports.
But, interestingly, even as the 'normal' flow is into Europe, there is massive demand from the rest of the world - most notably Australia - where panic buying, especially in rural areas, has driven up demand and left some service stations out of fuel.
The government has urged conservation, blaming the shortages on hoarding rather than underlying supply disruptions.
As Bloomberg concludes, with little sign of when the Hormuz waterway might be fully reopened, pressure is increasing on diesel markets.
The fuel is the lifeblood of the global economy - used to power everything from trucks to construction equipment - and rising prices risk driving up inflation around the world.
The secondary (and tertiary) impact of Trump's war in Iran are just getting started.