Fuel Prices Are Rising, Yet Germany Exports Diesel

Germany, typically importing a significant portion of its diesel needs, is paradoxically experiencing a surplus and even exporting so-called middle distillates like diesel and heating oil amidst the Iran crisis. This unusual situation arises despite a tight global diesel market and looming shortages.

According to data from Argus Media, Germany has been exporting middle distillates to the Amsterdam-Rotterdam-Antwerp (ARA) region in the Netherlands for about two weeks. This is remarkable because Germany is usually a net importer of diesel, with domestic production covering only about two-thirds of its demand, making it heavily reliant on global imports.

The global scarcity is exacerbated by idled refineries in the Middle East and crude oil shortages in Asian refineries due to the blockade of the Strait of Hormuz. An international bidding war has also erupted for US diesel, considered a crucial alternative, with Asian buyers already outbidding Europe for shipments.

Despite these global challenges, Germany's current diesel supply is stable to oversupplied. Hagen Reiners, an expert on the German oil market at Argus Media, attributes this to a significant drop in heating oil demand after a brief surge at the start of the conflict. "Persistently high prices and uncertainty about future developments deter consumers from buying," Reiners states.

Traders in the ARA region, however, appear willing to pay high prices to build up their diesel inventories. Reiners speculates they fear an April shortage if the Strait of Hormuz remains blocked.

The diesel supply situation could become critical around April 10th, when the last diesel shipment for Europe, which left the Persian Gulf before the blockade, is expected to arrive. After this, shortages are likely, unless ships carrying expensive and globally sought-after US diesel can deliver. This development could lead to further increases in fuel prices.