March Recap - European Middle Distillates

Strait of Hormuz closure compounded by Gulf refinery destruction; ULSD NWE CIF +67% in March.

• The Strait of Hormuz closure following the US-Israeli attack on Iran (28-Feb) triggered the largest supply disruption in the history of the global oil market, but the impact on European middle distillates was amplified by a second, less-discussed shock: the simultaneous destruction of Gulf refining capacity. 
• Iranian drone strikes knocked ~2.8 million bpd of refining offline across Saudi Arabia, the UAE, Kuwait, and Bahrain, removing a critical source of European diesel imports. Persian Gulf supplied ~15% of Europe's diesel imports in 2025. 
• ULSD NWE CIF Cargoes surged from $887/mt to $1,485/mt (+67%), with ULSD consistently outperforming gasoil 0.1% by ~$90/mt as tighter ultra-low-sulphur supply commanded a scarcity premium. 
• Cracks vs Brent more than doubled to $92.62/bbl at peak (20-Mar). ULSD vs LSGO Futures physical premium spiked from -$10.75/mt to +$108.50/mt as futures failed to keep pace with physical scarcity. 
• The W4 easing (+3.0% WoW vs +16.1% in W3) reflects Trump's 23-Mar pause on Iranian energy strikes and Iran allowing selective transit, but with ARA gasoil stocks falling, alternative supply constrained (China and South Korea halted product exports), and Gulf refinery restarts weeks away, the relief is likely temporary. 
• Diesel also competed for barrels with jet fuel, which was more reliant on Gulf supply (~50% of European jet imports); global jet exports fell 60%+ to below 700k bpd. Tightening should worsen in April as disrupted cargo schedules feed through. 

Price Action (ULSD NWE CIF Cargoes)

Supply shock repriced diesel +40% in Week 1; three phases followed:

• Phase 1 (W10, 2-6 Mar): Market repriced to Hormuz closure; avg $1,052/mt, +$299/mt (+39.8%) vs W9 ($753/mt). Prices jumped $128/mt on 3-Mar alone as IRGC declared Strait closed on 2-Mar. By 6-Mar, ULSD had already reached $1,208/mt. 
• Phase 2 (W11-12, 9-20 Mar): Gulf refinery strikes compounded crude supply loss. W11 avg $1,176/mt (+11.7% WoW), W12 avg $1,365/mt (+16.1% WoW). All three Kuwaiti refineries at ~50% capacity; Ruwais (UAE, 922k bpd) fully offline; Ras Tanura (Saudi, 550k bpd) halted temporarily.
  
  • Largest single-day drop: -$168.25/mt on 10-Mar after Trump announced intent to seize the Strait (9-Mar); market briefly priced military reopening before reversing as blockade continued. 
  • Monthly high of $1,506.75/mt on 20-Mar coincided with reports of strikes on Saudi Yanbu Red Sea export terminal, threatening the primary bypass route for Gulf crude. 
• Phase 3 (W13, 23-27 Mar): Trump paused attacks on Iranian energy facilities (23-Mar, extended to 6-Apr). Iran allowed ships from China, Russia, India, Iraq, Pakistan to transit. W13 avg $1,406/mt (+3.0% WoW); pace of gains slowed sharply on diplomatic signals. 
• Closed at $1,484.75/mt (27-Mar); intra-month range of $620/mt ($886.75 to $1,506.75). 

• MoM: March avg $1,249.71/mt vs February $714.53/mt (+$535.18, +74.9%).
• YoY: March 2026 $1,249.71/mt vs March 2025 $677.83/mt (+$571.88, +84.4%).

Cross-Market Dynamics

ULSD scarcity premium over gasoil widened to $174/mt at peak; cracks doubled as refining loss multiplied the crude supply shock.

• ULSD outperformed gasoil 0.1% because the capacity loss was concentrated in ultra-low-sulphur refining; Gulf refiners are major 10ppm diesel exporters to Europe. 
• GO 0.1% vs ULSD NWE Barges diff widened from -$25.50/mt (2-Mar) to -$174.00/mt (20-Mar), closing at -$90.00/mt. The diff widening tracked the refinery news cycle: peak coincided with maximum Gulf outage estimates on 20-Mar. 
• Diesel competed for barrels with jet fuel, which was more reliant on Gulf supply (~50% of European jet imports in 2025). Kuwait, India, UAE were top three jet exporters to Europe.  
• All three Kuwaiti refineries (Mina Al-Ahmadi, Mina Abdullah, Al-Zour) ran at ~50% capacity. Ruwais (UAE, 922k bpd) fully offline. Ras Tanura (Saudi, 550k bpd) halted temporarily after drone debris. 

• Crack expansion confirms the move was product-specific, not just crude-driven; ULSD NWE CIF crack opened at $41/bbl and closed at $88/bbl. 
• ULSD vs LSGO Futures diff averaged +$37.05/mt, range -$10.75/mt (9-Mar) to +$108.50/mt (19-Mar). The physical premium over paper spiked 10x as futures failed to keep pace with physical scarcity.

Cross-Regional Dynamics

NWE commanded premium over MED; alternative supply routes closing one by one.

• ULSD NWE CIF averaged $1,249.71/mt vs MED CIF $1,228.58/mt. NWE premium of ~$21/mt reflects the ARA hub as the destination of last resort for constrained flows. 
• ULSD MED FOB Cargoes averaged $1,194.29/mt; MED FOB-to-NWE CIF spread indicates freight and logistics premium being absorbed by buyers. 
• China's NDRC ordered refiners to suspend diesel and gasoline exports, protecting domestic supply and removing Asia's largest discretionary product exporter from the market. 
• South Korea capped refined product exports for the same reason. 
• European buyers avoided Reliance (India) cargoes due to Russian crude feedstock, narrowing the available supply funnel. 
• Remaining alternatives: Nigeria's Dangote refinery and USGC, both limited in scale and facing freight constraints. 
• ARA gasoil stocks fell 1% MoM to 16.12 million barrels (Insights Global); gasoil imports down to 253-289k bpd from 304k bpd in February (Vortexa). 
• Kuwait supplied ~47-52% of ARA gasoil imports in early March; reliability uncertain with all three refineries at half capacity. The full disruption lag has yet to hit ARA inventory data. 

Curve Structure

Prompt diesel vs LSGO diff widened 3x; acute prompt squeeze consistent with physical scarcity.

• ULSD 10ppm CIF Med and NWE Cargo vs LSGO Swaps curves widened sharply to underpin the physical market rally. Amid a dearth of physical liquidity, at times it was the paper component ultimately setting the pace for the physical pricing.  
• M1-M2 swaps diff vs LSGO moved from +$0.50-1.00/mt (end-Feb) to +$15-20/mt (mid-to-end-March). BalMo swaps diffs vs LSGO reached +$100/mt in Week 3 of the war, pulling back to $65-80/mt by the end of the month (vs $10-17/mt end-Feb). 
• The explosive widening of the prompt spreads is consistent with an acute prompt squeeze - physical scarcity in the near term far exceeding any deferred tightness. 

Price Volatility

March CV spiked to 13.9%, nearly triple the prior 6-month range; ULSD structurally more volatile than gasoil.

*Mar partial, 19 days.

• ULSD CV (13.5-13.9%) ran ~3 percentage points above gasoil (10.7-10.8%), reflecting ULSD's greater sensitivity to Gulf refinery outages where ultra-low-sulphur capacity was disproportionately affected.
• February 2026 was the volatility trough (3.51-3.99%); the Feb-to-Mar transition is the sharpest CV acceleration in the 6-month window. 
• The volatility is event-driven (Hormuz + refinery strikes), not structural. If transit resumes, mean-reversion risk is high, but the refinery restart timeline (4-8 weeks minimum) sets a floor under volatility. 

Something to Watch

Three triggers that determine whether April gets worse or stabilises.

• Hormuz reopening timeline: Trump's pause on Iranian energy strikes expires 6-Apr. If extended or converted to a ceasefire, selective transit could widen. If strikes resume, the 20-Mar price spike ($1,507/mt) becomes the floor, not the ceiling. Monitor: US military posture in the Gulf, IRGC shipping declarations. 
• ARA stock drawdown acceleration: Gasoil stocks fell only 1% in March because early-month Kuwait cargoes were still arriving on pre-conflict schedules. April will reflect the full disruption lag. If ARA gasoil stocks breach 15 million barrels, physical premiums vs paper (currently +$37/mt avg) will widen further. Monitor: weekly Insights Global inventory data, Vortexa ARA import flows. 
• Gulf refinery restart pace: Ruwais (922k bpd, fully offline) and Kuwaiti refineries at half capacity are the key bottlenecks for European diesel supply. Industry estimates suggest 4-8 weeks for safe recommissioning under normal conditions; active conflict extends this. Any confirmed restart schedule would cap the ULSD/GO 0.1% spread, which at -$90/mt is pricing in prolonged ULSD scarcity. Monitor: ADNOC, Aramco, KNPC operational updates. 

Note: All figures, prices and market activity referenced in this report are based on the period 1–27 March 2026.