Diesel Traders Bet on Price Spike as Russia Refineries Hit
Any Price Increase Matters for Global Supply Chains
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Oil traders are betting on a surging diesel market as an escalation in Ukrainian attacks on Russian fuelmakers threatens to tighten global supply.
Investment funds hold the largest number of wagers on higher European diesel prices since February 2022, according to positioning data released Sept. 24. At the same time, there have been record volumes of options contracts traded betting on the diesel curve this month, Intercontinental Exchange Inc. data shows. Much of that volume has been concentrated in wagers on a stronger market.
For global supply chains, any price increase matters because Russia remains one of the world’s most important suppliers of diesel, a fuel essential for trucking, shipping and agriculture. Higher prices could also support crude oil futures that are currently under pressure from an expected surplus.
Ukraine has carried out at least 23 attacks on Russian refineries since the start of August, a similar tally to the entirety of the prior seven months. There have already been signs Russia’s shipments are falling and the decrease comes as seasonal refinery maintenance in the northern hemisphere pressures supply globally.
“The physical squeeze is small, the psychological squeeze is huge,” Haris Khurshid, chief investment officer at Karobaar Capital LP said of the attacks and their impact.
With fuel prices hitting records in Russia on the Spimex commodities exchange, the country is also weighing restrictions on exports of diesel. Gasoline shipments are already blocked.
If adopted, a diesel ban would target companies that buy the fuel inside Russia and then ship it abroad, people familiar with the government’s deliberations said Sept. 23. A prohibition limited to those resellers would have less impact on global fuel markets than a full halt, since most of Russia’s diesel cargoes come directly from fuelmakers.
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The prospect of a ban comes as diesel’s premium to crude oil in Europe is already well above the seasonal average, a sure sign of supply pressures.
Over the past week, options markets for December and the first quarter have turned more bullish, with millions of barrels changing hands.
More than half of the calls traded in the past few of days were concentrated in strikes that would pay out if ICE Gasoil futures for October were between $700 and $750 a metric ton. While it’s not unusual for traders to make such bets, open interest for many options with strikes prices in this range more than doubled since early August. ICE Gasoil October futures on Sept. 23 settled up 2.4% at $705.75. Call options on U.S. diesel futures also recently saw their busiest day of trading since 2018.
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Russian refining runs recently dropped below 5 million barrels a day, the lowest since April 2022, JPMorgan Chase & Co. analysts wrote in a note. That’s at least 7% lower than normal for the time of year, according to data compiled by Bloomberg. Recent attacks on Russian infrastructure include the Kirishi, Saratov, Volgograd, Novokuibyshevsk and Bashneft facilities.
“There is a real concern about general diesel/gasoil supplies,” said Scott Shelton, an energy specialist at TP ICAP Group Plc. “Russian export data is now showing new seasonal lows on distillate exports.”
Written by Mia Gindis and Jack Wittels
