NEW YORK, July 8 (Reuters) - U.S. diesel futures were set for their biggest daily gains in four years on Wednesday after Russia announced a ban on exports of the industrial fuel, supercharging supply concerns in a market grappling with uncertainty about Middle Eastern oil flows.
The ultra-low sulfur diesel futures benchmark on the New York Mercantile Exchange settled up 11.6% at $154.71 a barrel, the highest level in over a month and the biggest daily gains for the contract since March 2022.
The sharp price response to Russia's export ban, implemented in the face of intensifying Ukrainian drone attacks on its refineries, highlights the extreme tightness in global diesel markets. The attacks on Russian refineries, combined with plant closures elsewhere, years of supply cuts by the OPEC+ group and disruptions from the Iran war, have limited diesel production and kept inventories tighter-than-normal around the globe.
"Diesel is the one product that everybody needs to watch," said Tom Kloza, chief energy adviser to Gulf Oil. "It was stressed even before the Russian ban, and now you have a very, very strong setup for the middle of the barrel."
In the United States, a seasonal export record and strong domestic demand pulled the country's diesel and heating oil stockpile down by nearly 5 million barrels last week to about 103.6 million barrels, government data showed on Wednesday. That is about 7% below the five year average.
U.S. total distillate fuel exports averaged 1.7 million barrels a day last week, the highest on record for the start of July, Energy Information Administration data showed on Wednesday. Domestic demand, meanwhile, stood at 4.3 million bpd, 1.6% higher than the same time last year.
The United States no longer imports any Russian diesel, but U.S. consumers could still feel the pinch as nations that do rely on Russian flows will likely turn west for replacement barrels, Kloza said.
With domestic demand also running high, the expected additional pull from other nations in a tighter global market could translate to higher prices for U.S. consumers, stoking fresh inflation concerns. Wholesale diesel prices are set to see hikes of more than 40 cents per gallon in response to the Russian export ban, Kloza noted.
For U.S. refiners, the developments likely translate to better profits: the diesel futures crack spread, or the difference between the price of the fuel and the price of crude oil, surged to over $80 a barrel on Wednesday. That is the highest since early April.
Reporting by Shariq Khan and Scott DiSavino in New York; Editing by Chizu Nomiyama
