<article><p class="lead">Diesel margins in northwest Europe have breached a $6/bl premium over crude for the first time in more than three months, driven by heavy cuts to refinery output. </p><p>French-grade diesel cargo premiums to the North Sea Dated crude benchmark hit $6.01/bl yesterday. The last time they exceeded $6/bl was on 19 August. In the intervening period, they dipped to <a href="https://direct.argusmedia.com/newsandanalysis/article/2143760">a 21-year low of $2.20/bl</a> during September. </p><p>Refineries across Europe have been shutting capacity as demand weakens under the weight of the latest round of Covid-19 lockdowns. Total <a href="https://direct.argusmedia.com/newsandanalysis/article/2162744">said earlier this week</a> that it will halt operations at its 222,000 b/d Donges refinery, the second-largest in France, until refining economics improve. Portugal's Galp has stopped fuel production at its 110,000 b/d Porto refinery until next year. UK-Chinese joint venture Petroineos and Spanish integrated company Cepsa have both mothballed crude units. And trading firm Gunvor has mothballed its entire 115,000 b/d Antwerp refinery. </p><p>Refinery utilisation in the EU-15 plus Norway was just 69pc in October, down by one percentage point from the previous month, according to Euroilstock. Utilisation may be even lower this month on the back of the latest capacity shutdowns. </p><p>European diesel margins are also being supported by an <a href="https://direct.argusmedia.com/newsandanalysis/article/2163267">unusually high level of exports to the US</a>. The weakness of Europe's diesel market relative to the US has caused eastbound flows to drop off while rare westbound shipments rise. Most recently, Trafigura booked two Large Range 1 (LR1) tankers to load diesel in northwest Europe for transatlantic discharge.</p><p>Another factor helping to prop up margins is German buyers stocking up on diesel ahead of the <a href="https://direct.argusmedia.com/newsandanalysis/article/2159247">introduction</a> of a CO2 tax in January, which will increase retail prices. One German trader, who sells mainly to truckers and farmers, said his sales are relatively strong compared with counterparts selling into the retail market.</p><p>Diesel margins are climbing from a very low base, having crashed in late spring and early summer when it became clear that burgeoning stocks would keep the market oversupplied for months to come. Margins have averaged $5.31/bl in November so far, compared with $15.45/bl in the same month last year.</p><p class="bylines">By Benedict George</p></article>
