December has showcased a significant shift in the diesel markets of both the US and Europe, marked by fluctuations in prices and a complex backdrop of refining adjustments and weather-related demand pressures. Europe's diesel imports were set to hit a multi-month low. Imports from key suppliers, like Saudi Arabia and India, fell to multi-year lows. This was despite a surge in U.S. shipments.

In the United States, diesel prices rose modestly, a slight 2.7-cent increase from the previous week. This shift marked a slight recovery from weeks of unstable prices. A mix of factors, including colder winter forecasts, drove this. The national average rose slightly in late December. But prices fluctuated in the East and Gulf Coasts due to local supply and demand imbalance.

As December closed, market participants were watching for the winter's impact. Forecasts predicted the coldest winter in years for the northern hemisphere. This triggered a rise in futures, with ultra-low sulfur diesel (ULSD) prices gaining 2.5%, settling higher, the highest since early November. Analysts speculated that heating demand, as a substitute for natural gas, would drive prices up in the coming weeks. In fact, heating degree days, a measure of energy demand for space heating, were expected to increase significantly across the US and Europe, further tightening diesel supply.

Despite these signs of short-term demand tightening, long-term structural trends remained concerning. In Europe, diesel use fell as governments sped up the shift to cleaner fuels and electric vehicles.  Diesel vehicle registrations were notably lower, particularly in Germany and the UK, where electric and hybrid vehicles gained substantial market share. These shifts signaled a longer-term downturn in demand for traditional diesel-powered vehicles, which had historically driven consumption.

On the refining side, both the US and Europe faced capacity adjustments. Several major refineries in Europe, including Petroineos’ Grangemouth refinery and BP’s Gelsenkirchen plant, announced closures that would permanently reduce production capacity in 2025. These closures were expected to weigh on the European diesel supply, potentially leading to higher import dependency. Meanwhile, US refineries, particularly in the Gulf Coast, also reported declines in diesel production due to planned maintenance and seasonal changes.

Looking forward, 2025 is expected to be a year of transition for the diesel markets in both regions. The closure of refineries and a slight rebound in global demand, especially in industry, could support prices. Analysts were cautious about a refining margin recovery. Ongoing changes in the auto sector and energy markets could limit the upside.