Sharp swings in European diesel prices in November were driven in part by entities with no physical exposure, as money managers briefly held their largest long positions in Ice gasoil futures in nearly four years.
Funds have looked to gasoil futures because of increasing volatility in the contract when compared with Ice Brent crude futures, according to a senior participant in oil paper markets. The daily change in the value of front-month Ice gasoil has averaged 1.66pc so far this year, compared with 1.32pc for front-month Ice Brent.
Money managers — hedge funds and pensions funds, along with other entities managing on behalf of clients — have increased their long positions in Ice gasoil futures as the year has progressed. This reached a 45-month high of 153,689 lots in the week to 18 November, according to Ice's Commitment of Traders report.
Ice gasoil futures hit $777.50/t on 18 November, the third-highest of the year.
Money managers trimmed 10pc of that position the following week, to 137,971 as of 25 November. Ice futures fell below $700/t on that date, pressured by reported progress on a plan to end the conflict in Ukraine. This led market participants to consider what peace would mean for diesel markets: a slow down in Ukraine's drone campaign against Russian energy infrastructure and, in the longer term, a possible European return to importing Russian diesel.
Funds' long position is still almost double the 74,015 held at the start of 2025, and the average 75,398 held in 2024.
Long and the short of it
Before peace talks started to progress, money managers' net long positions were the highest in more than three-and-a-half years.
An analyst said funds have probably taken an overall position of being long diesel cracks — taking long positions in gasoil futures and short ones in Brent. Permanent cuts to refining capacity in Europe, as well as extensive temporary outages this year, have contributed to a disconnect between gasoil and Brent price movements. As gasoil prices rise, refiners can hit capacity limits, which has capped their crude buying and kept Brent steadier.
Managed money held the biggest short position in Brent since at least 2015 on 21 October at 190,639 lots. This has fallen since, but did rebound to 163,975 on 25 November, the eighth shortest since 2015.
Funds' involvement in futures has further increased volatility, as they tend to buy and sell futures more quickly than entities with physical exposure. That volatility increases potential losses as well as potential gains. Some funds may have made very large losses this year because of unexpected swings, the paper market participant said.
European diesel often prices on a exchange-of-futures-for-physical (EFP) basis, using Ice gasoil futures, meaning the futures price can be an influence on the physical price.
European physical diesel cargoes priced at a $45.64/bl premium against North Sea Dated on 19 November, the highest in nearly three years. The following week, when money managers were cutting their long positions, the physical diesel premium fell to $27.15/bl.
Ice gasoil futures is a physically-delivered contract, so any price dislocation is generally soon closed as traders look to work an arbitrage between the futures and physical.
