Optimism is growing in the European diesel and gasoil markets as hedge funds and portfolio managers continue to cut their bearish positions amid colder weather and surging natural gas prices. Traders are increasingly bullish on diesel futures, with expectations for further price increases throughout the winter.
In the week leading up to November 26, money managers reduced their short positions on ICE gasoil futures for the fourth consecutive week, marking the longest streak of reduced bearish positions since February. According to ICE exchange data reported by Bloomberg, speculators raised their net long positions by 3,421 lots, bringing the total to 23,239 lots—a clear sign of rising confidence in diesel’s market trajectory.
Key Drivers Behind Diesel’s Bullish Momentum
The upward trend in diesel and gasoil prices is driven by several factors. Unseasonably cold temperatures across Europe have increased heating demand, while surging natural gas prices—reaching a 2024 high of $51.07 (€48.59) per megawatt-hour on December 2—are pushing consumers and businesses toward oil-based alternatives like diesel.
This spike in gas prices is attributed to depleting EU gas storage and the impending expiration of the Ukraine-Russia gas transit agreement on December 31. As a result, the shift from gas to oil for heating and power generation is further boosting diesel demand.
Broader Market Dynamics
While seasonal and economic factors are strengthening diesel prices, other variables introduce complexity. Aging refinery capacities, potential unplanned outages, and geopolitical shifts, are creating volatility. For example, concerns over Russian gas being rebranded as Azerbaijani fuel could impact Europe’s energy mix.
Global demand trends also play a role. China, the world’s largest oil importer, is projected to peak in crude oil imports next year due to a rapid transition to electric vehicles and economic slowdowns. This shift could affect global oil demand and Europe’s diesel supply in the longer term.
Market Outlook
As Europe enters the winter months, the diesel market is expected to remain volatile. Traders and industry stakeholders must monitor evolving factors, including natural gas price fluctuations, geopolitical developments, and supply chain constraints. While the current outlook is bullish, these uncertainties could still significantly impact price trajectories and market stability in the coming months.
