Diesel faces a systemic shortfall and rationing can no longer be ruled out

Europe faces a diesel deficit that is no longer temporary

A striking fact: Europe imports roughly half of its diesel from Russia and the other half from the Middle East. That is how Russell Hardy, head of the Swiss oil trader Vitol, explained it, adding that this systemic deficit is here to stay and that, unless those imports are replaced by other means, "rationing is a possibility." This is not a threat for the distant future. It is a warning, with a name attached, that has been on the table ever since the continent lost its Russian diesel supply.

The problem did not begin with the invasion of Ukraine. The tensions predate it: very low stocks in China, the United States and Europe trinc the sharp rebound of the economy after two years of pandemic. By late 2021, China had already introduced rationing for trucks, with a limit of 100 litres per day. US diesel reserves hit their lowest level in 14 years. And Europe, with the war, suddenly lost its main supplier.

How many days of reserves are left and why a premium is being paid

The continent has supply for about 40 days. With that cushion, traders are paying steep premiums to secure product available now rather than waiting for future deliveries. The result is diesel at record highs in Spain, while in the United States retail prices have topped $5 per gallon for the first time, and in the UK it sells for more than £1.70 per litre, over $8.5 per gallon.

Diesel's ubiquity in modern life explains the anxiety: it is the fuel of freight transport. Its rising cost passes through the entire supply chain and fuels inflationary pressures that were already at multi-decade highs. More than the price of crude, the soaring price of diesel should be the main concern of central banks.

Do we have refineries to process alternative crude?

Yes, and some of the most modern in Europe. In Cartagena, Repsol and Petronor can distil heavy crudes, even bitumen-grade ones, with investments running into the billions. Hydrocrackers make it possible to obtain naphtha or diesel from very low-quality crude, such as Venezuela's. The problem is not technical: it is one of feedstock and price. As market logic dictates, the diesel refined here will end up wherever it can fetch the highest price, and Europe's neighbours are competing for that barrel too.

The tax that doubles the price and the room for manoeuvre

More than half of the price of diesel is state taxes. That is where the most obvious room for manoeuvre lies, if there were the political will to use it. The comparison with other countries makes it clear: in France and Portugal the special diesel tax is also lower than that on petrol, because diesel vehicle purchases were encouraged that way. The question hanging in the air is whether diesel will end up more expensive than petrol, something that has not yet peine in Spain thanks to that favourable tax treatment.

The context you can't see: Easter week and travel

While the price of a barrel is being debated, the calendar is pressing: Easter week brings 14 million journeys. Every fill-up will be a test for wallets and for supply capacity. Shortage is not a science-fiction scenario: it is a possibility the industry itself has put on the table if the imports are not replaced.

What if rationing arrives in April? The question is no longer rhetorical.