Commerzbank analysts Carsten Fritsch and Barbara Lambrecht highlight that the Iran war and Strait of Hormuz closure have sharply lifted Brent and refined product prices, especially diesel and jet fuel. They stress Europe’s heavy reliance on Middle Eastern middle distillates and the difficulty of replacing lost barrels. Their base-case assumes war ends in late spring, with diesel and jet fuel still above pre-war levels by year-end.

Iran war drives refined product squeeze

"The war in Iran, which has been ongoing for around a month, has led to significant disruption in the energy markets. The price of Brent crude has risen by around 57% since the beginning of March and is on track for its sharpest monthly increase in at least 38 years. Prices for oil products such as diesel and jet fuel have risen even more sharply."

"In addition to the sharp rise in crude oil prices, there was also a significant widening of crack spreads for oil products – the price differences between the oil product and crude oil. The gasoil crack spread peaked at USD 56 per barrel. The diesel crack spread reached the equivalent of nearly USD 80 per barrel, whilst the jet fuel crack spread exceeded USD 100 per barrel."

"Middle distillates account for another third of oil product exports from the Middle East. According to the IEA’s monthly report, 730,000 barrels per day of this total last year were gasoil/diesel and 380,000 barrels per day were jet fuel. The remainder of oil product supplies consisted of gasoline and fuel oil."

"Filling this gap from other sources is likely to be difficult. This is because the Asian OECD countries also have a gap of up to 240,000 barrels per day to fill in diesel/gas oil, which they have so far sourced from Asian non-OECD countries. Due to the shortage of oil products in those regions, these countries are also likely to reduce their exports or, as in the case of China, even cease them entirely."

"We have revised our price forecasts for diesel and jet fuel upwards accordingly. For diesel, we expect prices of USD 1,100 per ton by mid-year and USD 850 per ton by the end of the year. The price of jet fuel is likely to be USD 1,250 per ton at mid-year and USD 950 per ton at the end of the year."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)