Diesel cracks are soaring globally, which may indicate that there is stronger demand, partly due to oil-to-gas switch and a recovery in aviation demand that reduces diesel supply. Yet, the strength in cracks, the main profitability indicator for refining economics in Europe, are now almost exclusively driven by natural gas prices, as evidenced by intraday prices.
Indeed, hydrotreating and hydrocracking operations in Europe are exposed to natural gas prices to produce hydrogen. With such sky high natural gas prices, refining fuel cost are increasingly becoming an issue, costs throughout the oil supply chain are going up due to the natural gas market tightness. We expect that ARA inventories, released today, will give us information about the diesel inventories, with a potential upward correction if stocks keep drawing at last week’s steady pace.
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