The re-escalation in the Middle East and Russia’s ban on diesel exports, combined with relentless Ukrainian drone attacks on refineries, have pushed middle distillate cracks to record highs this week.

Renewed strikes in and around the Strait of Hormuz have erased hopes of a quick recovery in oil product flows from the Middle East, leaving diesel markets tight, ING commodities strategists Warren Patterson and Ewa Manthey said in a note early Wednesday.

The pressure is most visible in the diesel market, where the ICE gasoil crack — the pricing difference between a barrel of crude oil and the diesel refined from it — hit a record high of $79 per barrel on Tuesday. In the United States, the diesel crack is trading well above $100 per barrel and remains near the all-time highs reached last month.

“Timespreads reflect this acute tightness, with the ICE gasoil Sep/Nov spread trading at a backwardation of $80/t,” ING’s commodities strategists said.

Backwardation is a market structure in which prompt contracts trade above those for later delivery, signaling concern about immediate supply.

“Given disruptions to Middle East and Russian diesel exports, and with little sign of an imminent recovery, middle distillate cracks are likely to remain highly elevated and volatile, particularly as we move towards seasonally stronger demand,” they said. “The global refining system has little slack to make up for the disruptions we are currently seeing.”

Since the middle of June, diesel prices globally have risen faster than crude oil prices as several factors continue to tighten the market. These include the wars in Iran and Ukraine, which are curbing product supply from the Middle East and Russia, while Chinese fuel exports have yet to meaningfully recover after months of restrictions intended to protect domestic supply. Flows through the Strait of Hormuz also remain below pre-war levels.

That combination matters because diesel is a key industrial and transportation fuel, so tightness in middle distillates can ripple through freight, farming, manufacturing, and heating markets even when crude itself is not the only driver. With little spare capacity in the refining system, traders are watching how long outages and export limits persist, especially as demand typically strengthens into the next seasonal demand period.

Goldman Sachs said last week that refiners are set to benefit from the global diesel shortage, revising its earlier forecast to show that refining companies could make twice as much profit from the squeeze as previously expected.

By Tsvetana Paraskova for Oilprice.com