What exactly is the crack spread and why is the record of $102 important?

The crack spread is the difference between the price of crude oil and the price of a refined product such as diesel. The record $102 means that refiners and consumers are paying dramatically more for diesel relative to crude oil, signaling a serious shortage of refined products.

Why are diesel prices rising faster than crude oil prices?

Because governments are releasing strategic crude oil reserves into the market, which restrains its price, but does not address the shortage of refined products. Diesel inventories in the US are at a 23-year low, and in Europe they are near 2022 levels.

How could this crisis affect everyday life?

Higher diesel costs affect farmers and transporters, which spills over into food and goods prices. JPMorgan has warned that a global food crisis could erupt as early as next year.

What role does the Strait of Hormuz play in this crisis?

The Strait of Hormuz is a critical maritime chokepoint for global oil transport. Attacks on ships in its vicinity and disruptions in transport further complicate supply and raise prices, especially for refined products.

World

Record Diesel Crisis: Price Gap Hits $102

A.C. · Prije 10h | 3 min

While crude oil remains below $100, diesel prices are exploding due to depleted inventories and disruptions in the Strait of Hormuz. Analysts warn of a perfect summer storm that could lead to a global food crisis.

Summary

Record $102 per barrel spread between diesel and crude oil prices in the US.
US diesel inventories near 23-year low, European inventories near 2022 levels.
JPMorgan warns of a possible global food crisis as early as next year.
Disruptions in the Strait of Hormuz and the expiration of the peace agreement with Iran add further pressure.

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The crisis in refined petroleum products has reached an unprecedented point. While Brent and WTI crude oil futures remained below $100 per barrel on Tuesday morning, the price of US diesel has exploded to a record spread of $102 per barrel over crude oil (NYMEX one-month heating oil/WTI crack spread), according to data published by ZeroHedge.

"This is absolutely unprecedented. Either the industrial economy grinds to a halt, or consumers will be hit by the largest energy cost pass-through in history," the ZeroHedge editorial team posted on social media platform X on Monday, accompanied by a chart that went viral overnight.

Perfect Storm: War, Attacks, and Depleted Inventories

Unlike crude oil, whose prices are somewhat restrained by governments releasing strategic reserves into the market, diesel has no such safety valve. The war between Russia and Ukraine, attacks on energy infrastructure, and ongoing disruptions near the Strait of Hormuz-a critical maritime chokepoint for global oil transport-are fueling what Francisco Blanch, an analyst at BofA (Bank of America), has called a "perfect summer storm for diesel."

Oil strengthened further on Tuesday morning, with Brent around $91 per barrel after another attack on a ship near the Strait of Hormuz was reported. Meanwhile, US President Donald Trump stated that he has no interest in extending the temporary peace agreement with Iran, which expired on Monday.

Inventories at Historic Lows

Pressure on prices is also being intensified by dramatically depleted inventories. US diesel reserves are near a 23-year low, while European inventories are approaching levels seen during the 2022 energy crisis. Anthony Yuen, an analyst at Citi, warns that global diesel inventories are below the five-year minimum.

An additional problem is the depletion of the US Strategic Petroleum Reserve (SPR), which has fallen below 300 million barrels. As ZeroHedge points out, releasing these reserves may temporarily restrain crude oil prices, but it does not address the shortage of refined products. Instead, it pushes emergency inventories to dangerously low levels while the fuel shock downstream continues to intensify.

Wall Street Analysts Raise the Alarm

Several major investment banks have warned about the developments. Daan Struyven of Goldman Sachs points to a decline in global diesel exports, while Sam Burwell of Jefferies notes that "the Hormuz shock is manifesting in price spreads, not in crude oil."

The consequences could be far-reaching. Rising fuel costs threaten farmers and transporters, and ultimately consumers through higher food and goods prices. JPMorgan issued a warning last week that a global food crisis could erupt as early as next year. For Croatian consumers, this could spill over through higher prices for imported food and energy, although there is no direct connection to Croatia in the sources.