Refining margins in Europe — especially for distillates — have remained unexpectedly firm in recent months, as concerns over tightening supply and potential disruptions outweigh slowing oil demand growth, delegates heard at the Argus Global Markets Conference.
Transport fuel demand in Europe typically eases after summer. But gasoline cracks have been unseasonably strong, averaging nearly $19/bl above the North Sea Dated crude benchmark in September, up from $8–9/bl a year earlier.
Prices have at times matched those of jet fuel and diesel, which panelists said may reflect stronger gasoline demand in southern Europe and the Mediterranean region. Middle distillate cracks have also held firm, remaining above $20/bl over Dated in September.
This resilience has defied a slowdown in demand growth. The IEA expects global oil demand to increase by just 740,000 b/d this year, down from just under 1mn b/d in 2024. Europe accounts for only 45,000 b/d of this year's projected growth, following a modest rise of around 70,000 b/d last year. The agency forecasts European demand will fall by around 90,000 b/d in 2026.
Panelists pointed to several factors that could continue to support margins in the face of this weak regional demand outlook.
First, several refinery closures in Europe have tightened domestic product supply. While these closures reflect a weaker long-term outlook for road fuel demand, speakers agreed the loss of capacity has outpaced the rate of decline, lifting margins.
Second, ongoing Ukrainian drone attacks on Russian refineries are affecting global supply. At least 16 of Russia's 38 refineries have been targeted since early August, significantly curbing oil product output — particularly diesel. Russia is the world's second-largest diesel exporter.
While Europe no longer imports Russian oil products, the region now faces increased competition for supply from Moscow's typical buyers.
Finally, the latest package of EU sanctions — which will ban oil products made from Russian crude from next year — may also be supporting cracks, panelists said. If Indian refiners continue processing Russian crude, as market participants largely expect, the measures could curb Indian product exports to Europe.
