Tight supply of diesel keeps prices high

It remains unsettled in the energy markets. On the one hand, we naturally have the geopolitical tensions that are not easing. All in all, due to the various acts of war, a considerable amount of capacity for fuel production has been lost. This is becoming increasingly noticeable, especially for diesel. Meanwhile, the weather is not cooperating for us in Europe either. The drought is affecting electricity producers. After a dip last week when Brent Crude briefly fell below $80 per barrel, we are now well above that again. At the time of writing, Brent stands at $85 per barrel. The unrest in the Middle East remains an important factor in the oil market. Signals about whether or not a solution for the Strait of Hormuz is in the pipeline are contradictory. Iran and Oman would be fairly close to a provisional agreement on a temporary solution for navigation through the strait. The Iranian foreign minister states that Tehran and Washington have no direct contact with each other. Before the Strait of Hormuz can be opened, Iran wants the blockade that the US has imposed on Iranian ports and shipping to be lifted and for Iran to receive compensation for the damage it incurred during the conflict. The picture Iran is painting here differs somewhat from how the Americans had previously presented it. A deal on the Strait of Hormuz would, according to Washington, be within reach. The price of crude oil and of diesel and petrol are closely intertwined. A commonly heard and largely justified criticism is that when the oil price rises diesel follows, but when the oil price falls diesel lags behind. Various analysts warn that the relationship between oil and diesel prices could become even more out of sync. The cause is the sharply reduced refining capacity. Russia We have already mentioned the Middle East, and besides attacks on Iran, Iran has targeted facilities in, among others, the Gulf states and Saudi Arabia. A bit further north and east in Russia, there are also major problems with the processing of crude oil. Ukraine is successfully carrying out attacks on the Russian oil industry. Some sources say that, all in all, around 40% of the Russian oil industry has been affected by Ukrainian attacks. Russia, traditionally a major exporter of diesel, is therefore even being forced to impose an export ban on diesel. According to some analysts, 10% of global refining capacity is out of action. Partly as a direct result of, for example, a drone attack, but partly also because refineries in the Persian Gulf, for example, can no longer sell their products because of the blockade. Diesel is indispensable According to some experts, diesel is extra sensitive because it is the fuel on which the economy runs. Agriculture, mining, construction and infrastructure right through to transport, it all runs almost entirely on diesel. The risk that diesel will rise a little further is therefore real, according to some analysts. The harvest season in agriculture is still in full swing and as we get a little further along, the first demand for heating oil also starts up again. This coincides with the periodic maintenance of refineries along the Gulf of Mexico, which is usually scheduled from mid-August to October, during hurricane season in that region. Following oil, the gas price is also on the rise. The European benchmark, TTF, is once again approaching €60 per MWh. Gas supply remains tense, due to developments in the Middle East and Russia. Qatar is an important producer of LNG but depends on free passage through the Strait of Hormuz for exports. Filling level In addition, the filling level of European storage facilities remains a cause for concern. According to the latest figures from AGSI/ALSI, European storage facilities are 59% full. By comparison, last year the filling level was 70%. In the Netherlands, storage facilities were 60% full at this time last year compared with 39% now. On the world market, Europe faces strong competition from Asia for LNG supply. Prices in the east are at a higher level than ours. The result is that sellers are serving buyers in Asia and leaving Europe out in the cold for the moment. Another factor that makes filling the gas storage facilities more difficult is the drought and heat in Europe. Although we are not a continent of air conditioners, various sources report that demand for electricity is relatively high, including for cooling. However, generating electricity is hampered. Due to congestion on the electricity grid, gas-fired power plants have to step in. The efficiency of solar panels is somewhat reduced by the warm weather and we do not have a lot of wind every day. Hydroelectric plants are seeing the amount of water in the reservoirs fall due to the lack of precipitation. Earlier this month, Hungary had to shut down the nuclear power plant, which normally accounts for half of the country's electricity production, due to a lack of cooling water caused by the low level of the Danube. This week, the nuclear power plant is, if all goes well, being restarted because the water level in the river has risen. However, it is only operating at 10% capacity. The price of electricity on Epex Spot Day Ahead remains relatively stable, but at a high level, around and above €100 per MWh.