Europe's diesel market is facing a severe crisis due to supply chain disruptions, while a recent report by Morgan Stanley pointed to a significant drop in inventories.

Morgan Stanley analysts said in a note dated July 19: "The situation is extremely critical. Our supply and demand models indicate that European diesel inventories will fall to their lowest levels in many years by the end of the year."

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The diesel market – a key fuel used in trucks, agriculture, and industry – is under increasing pressure due to several factors, including disruptions in the Strait of Hormuz, Ukrainian attacks on Russian refineries, and Moscow's ban on diesel exports. European diesel futures prices rose 3.5% to $1,219.50 per ton on Monday, the highest level since May 20. In the crude oil market, Brent crude futures rose above $90 per barrel, recording a 24% gain this month. The analysts said: "The real bottleneck in the oil system right now is refining, more than crude oil itself," noting unsold African oil cargoes and declining oil prices in some market segments. They added: "The diesel market, and Europe in particular, is the epicenter of this crisis."

They pointed out that diesel refining margins in Northwest Europe – known as crack spreads – have risen to a record level. Local inventories are expected to decline gradually starting from August, reaching a low of about 299 million barrels in November, the lowest for this time of year since at least 2015.