U.S. ultra-low sulfur diesel futures hit the highest level since February, outpacing gains in oil and gasoline as analysts warned that diesel supply is the most exposed to the conflict in the Middle East.
Israel on Friday launched the biggest ever direct attack on Iran and said the huge wave of airstrikes was only the start of its campaign. Iran has since launched retaliatory strikes, with explosions heard over Tel Aviv and Jerusalem.
Crude oil futures jumped about 7% as analysts worried Iran’s response could include a blockade of the Strait of Hormuz, through which a fifth of global oil supplies traverses. Diesel futures jumped even more, surging about 8% for their biggest single-day gains since April 2022.
Diesel outperformed because the conflict’s biggest impact is expected to be on the supply of medium heavy-sour crude grades, which are better suited for production of distillate fuels, StoneX oil analyst Alex Hodes said.
The Middle East is also a major export hub for distillate fuels like diesel, gasoil and jet fuel, said Matias Togni, analyst at oil market insights firm Next Barrel.
The conflict could impact liquefied natural gas flows within the region and lead to higher diesel and fuel oil consumption for power generation, with Egypt already showing signs of such a switch, Togni said.
Combined diesel, gasoil and jet fuel exports from the Middle East averaged 1.76 million barrels per day in May, close to 2% of total world oil consumption, according to Kpler data.
RETAIL SPIKE TO FOLLOW
Existing inventories for diesel are already low, adding to concerns that the conflict will lower Middle East diesel exports and global production, said StoneX’s Hodes.
U.S. inventories of diesel and heating oil stood at 108.9 million barrels in the week ended June 6, about 15% below the past five years’ average, U.S. Energy Information Administration data showed.
Combined with the surge in crude oil prices, those tight inventories are likely to cause a 10 to 30 cents a gallon surge in retail diesel prices in the U.S. over the next two weeks, GasBuddy analyst Patrick De Haan said.
By contrast, U.S. gasoline stocks were slightly above the five-year average at 214.7 million barrels, the EIA data showed.
GasBuddy is estimating a five to 15 cents per gallon jump in U.S. gasoline prices over the coming weeks.
U.S. Gasoline futures rose 8.47 cents to settle at $2.2276 a gallon on Friday, while ULSD futures rose 17 cents to settle at $2.3587 a gallon on Friday.
(Reporting by Shariq Khan in New York; Editing by Lisa Shumaker)