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Hedge funds turn bullish on US fuels as supply squeeze deepens
Fewer US refineries and higher exports are contributing to a tighter US fuel market, with diesel crack spreads hitting record highs in mid-August in the US and Europe.
Oil traders largely expected the Israel-Iran conflict to end in early 2024, allowing Middle East flows through Hormuz to recover. Instead, OilPrice reports that the market is shifting toward a fuel shortage, and positioning has turned more bullish, especially for US fuels.
The story points to a supply squeeze in the United States driven in part by higher crude and fuel exports and a comparatively cautious response from the oil industry to the war-related rise in prices. It also highlights that the US has fewer refineries than it did three decades ago, limiting how much fuel existing facilities can produce.
Diesel is described as the most challenging segment of the market, with tightening that pushed diesel crack spreads, the pricing difference between crude and refined diesel, to record highs in both the United States and Europe in mid-August. ING’s commodity analysis team warned that disruptions to Middle East and Russian diesel exports, with no sign of an imminent recovery, could keep middle distillate cracks elevated and volatile into a period of seasonally stronger demand.
With supply constraints especially affecting diesel, the article says hedging demand and market expectations have moved toward higher prices and greater volatility rather than an early normalization of flows. It quotes ING’s view that conditions are likely to remain highly elevated as the market moves toward peak seasonal demand.
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