Diesel prices

Comment by Eugen Weinberg, Head of Commodity Analysis at Commerzbank

Eugen Weinberg
Eugen Weinberg [Photo: Commerzbank]

Today diesel is available across the European Union at low prices last seen during the economic and financial crisis in early 2009, while in Germany they are actually even lower. This is primarily caused by a massive decline in prices for crude oil, which is due to significant oversupply. In an intense price war, the OPEC countries are currently trying to defend their market share, which U.S. oil producers in particular had been wrestling from them in recent years.
The prices in the diesel market came under particular pressure, as this is where the excess supply is extremely pronounced: First, the United States rushed onto the international market due to their shale oil boom. And then, in 2015 China also vastly expanded its diesel exports, as new refinery capacity met weakening demand. Furthermore, in the most important diesel market worldwide, the EU, demand is currently also weak. Heating oil, which is pretty-much the same as diesel, is in lower demand because of the mild winter, and a weakening economy is squeezing demand for diesel in the logistics industry.

But prices will not stay so low for long. Firstly, the price recovery that is expected in the crude oil market is likely to push the diesel price up. After all, drilling activities in the United States have practically broken down, which will increasingly slow the production of shale oil and reduce the oversupply. And secondly, the historically very low margin in the diesel market is sure to recover slightly. However, due to ample supply, it should remain significantly lower than the average of recent years.

Author: Eugen Weinberg

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