European Diesel Crack Spreads Hit Record Highs as Morgan Stanley Warns Inventories Could Fall to Decade Lows
Alina Collins
European diesel crack spreads have surged to all-time highs; Morgan Stanley projects inventories will drop to ~299 million barrels by November — the lowest since 2015. Yet the bank warns the squeeze is already fully priced in.
How tight is the European diesel market right now?
Northwest European diesel crack spreads — the gap between diesel and crude prices, a measure of refining profit — have hit all-time record levels.
Morgan Stanley's supply-demand model shows inventories declining from August onward, reaching roughly 299 million barrels by November — the lowest for that period since 2015.
This means → Europe's diesel shortage is not a mild tightness; it is approaching an inventory floor unseen in a decade.
Where is the supply gap coming from?
Three shocks are hitting at once: disrupted transit through the Strait of Hormuz, Ukrainian strikes on Russian refineries, and Russia's diesel export ban.
Analyst Martijn Rats and his team conclude: "The real bottleneck in the oil system is refining, not crude itself."
In plain terms = crude oil is not scarce — some African cargoes remain unsold. What is jammed is the step that turns crude into diesel.
How does China's lower refinery output reach Europe?
Chinese refineries have cut throughput, tightening global refined-product supply.
Morgan Stanley explains: China does not ship diesel to Europe directly, but "when Chinese refinery runs fall, the total volume of refined products available to flow west shrinks."
This means → global refining capacity works as a single network. Every barrel China does not refine eventually tightens diesel supply in Europe.
Has the price already caught up?
Morgan Stanley states explicitly: the current squeeze is "fully priced in" and advises against chasing at these levels.
Parts of the market already show a bearish contango-to-backwardation structure — forward prices sitting below spot, typically signaling expectations that supply will improve.
This reflects a contradictory signal: spot markets are extremely tight, yet the forward curve is already pricing in an eventual easing. Whether European diesel inventories stabilize before year-end will be the key test of that bet.
Content is for reference only, not financial advice.