European diesel tightens, crude weakens as French refinery outages...

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European diesel markets are flashing warnings of tightening supply while crude oil markets are weakening after nearly two weeks of disruptions at French refineries due to strike action, traders said.

The industrial action, part of a nationwide movement against planned pension system changes, has led to reduced output at the Normandy and Feyzin refineries while shipments from the Donges and La Mede refineries have also been blocked.

The outages have in recent days led to growing concern that French and regional supplies of fuels, in particular diesel, could tighten in the coming weeks.

In a sign of these concerns, the spread between the prompt and second month ICE low-Sulphur diesel contracts rose on Monday to a premium, known as a backwardation, of $32.75 a barrel, its highest since November 2022.

The profit margin for refining crude oil into diesel has jumped by nearly 40 percent over the past month.

That followed weeks of rising inventories in northwest Europe as traders rushed to fill storage tanks in the run-up to a Feb. 5 EU ban on Russian fuel imports.

"The diesel market flipped from feeling long and heavy to short and very backward," one trader said.

In the absence of Russian diesel supplies, Europe has sharply increased imports from Asia, the Middle East and the United States in recent months.

Diesel supply in the region is expected to tighten significantly by April, three trading sources said.

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France's refineries processed around 1 million barrels per day of crude oil in January, roughly 8.4 percent of Europe's total throughput, according to the International Energy Agency.

The strike action has weighed on prices of North Sea and Nigerian crude grades as French buying interest wanes.

"WTI cargoes for May delivery compared with April are down by $1.50-$2/bbl, because of that, North Sea is having to price lower to compete," one trader said.

Another trader said that there are rising fears French oil major TotalEnergies (TTEF.PA) will have to re-offer cargoes or stop buying for future demand.

France relies on the Ekofisk North Sea crude grade, produced at a field in Norway where TotalEnergies has equity.

Ekofisk differentials to dated Brent on Friday hit their lowest since January 2022.

Meanwhile, prices for crude grades from Nigeria, one of France's top suppliers, have dropped by around $1/bbl in the past two weeks, traders said.

"It's a buyer's market, with WTI and Azeri crude offered way down to sell," a trader of West African crude said.

European diesel tightens, crude weakens as French refinery outages linger

European

Diesel

Tighten

Crude

Oil

Weakens

French

Refinery

Outages

Linger

TotalEnergies