Jefferies: Diesel Cracks Reveal the Real Oil Market Squeeze
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Brent crude futures held near recent highs of $90 a barrel before fading to around $87 early Thursday morning, as traders awaited progress toward reopening the Strait of Hormuz.Stalled US-Iran negotiationsand tightening global fuel supplies continued to support prices and concern some top energy experts, who warn of a looming supply shock.
US-Iran talks remain deadlocked to end the week as the Trump administration maintains its blockade of Iranian ports and Tehran demands compensation for war-related damage.
Pakistan, which has served as a mediator, said the broader peace talks had stalled.
Late Wednesday, President Trump wrote in a Truth Social post that the USA has "total control" over the Strait of Hormuz and "I think we will keep it." It's also yet more confirmation that he's opting for economic siege warfare while the US military campaign is on hold.
So far, Brent crude is headed for a weekly advance of nearly 5% as a near-term resolution to the US-Iran conflict remains murky and Ukrainian and Russian attacks on energy infrastructure tighten oil and, more critically, diesel markets.
Last week, our note titled"Winter Is Coming"for Europe outlined how the energy-stricken continent faces a twin diesel and natural gas crunch.
Samantha Dart, co-head of global commodities research at Goldman Sachs, told Bloomberg TV early last week that the global diesel-supply crunch is "what keeps her up at night." Saxo Markets strategist Charu Chanana said volatility will remain elevated until Hormuz reopens and the outlook for production becomes clearer.
Making matters worse, the International Energy Agency released a report on Wednesday thatforecast a 1.8 million-barrel-a-daydeficit this quarter, more than double its previous estimate.
The agency also warned that elevated prices are beginning to crush demand and projected the widest annual supply shortfall in five years.Related: EIA Sees Massive Uptick in US Crude Oil Inventories Offsetting higher prices was bearish US inventory data showing that crude stockpiles surged by 17.4 million barrels last week, the largest increase since January 2023, as exports weakened and imports from Saudi Arabia and Venezuela increased.
Jefferies analyst Sam Burwell, who specializes in oil, gas and energy infrastructure equities, wrote in a note Wednesday that showed oil-market extremes in three charts: Three Pictures Worth 1,900 Characters - Oil Market Extremes We return from an earnings hiatus (and step outside Canada) to show some current extremes in global oil markets.
Chinese crude imports bounced a bit in July but remain far below the prior run rate.
| Product | Price | Change |
|---|---|---|
| Brent Crude | $102.14/bbl | +0.34% |
| WTI Crude | $96.90/bbl | +0.21% |
| EN590 Diesel | $846/MT | +0.18% |
| Jet Fuel A-1 | $1090/MT | +0.55% |
| Mazut M100 | $450/MT | -0.15% |
| Bitumen 60/70 | $470/MT | +0.08% |
| Sulphur Gran 99.5% | $470/MT | -0.44% |
| Urea 46% Gran | $650/MT | +1.12% |
| NPK 16-16-16 | $460/MT | -0.28% |
| Nat Gas TTF | $15.42/MMBtu | +0.92% |
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