Brent surges past $91 on Iran strikes as Europe diesel squeeze tightens
Military strikes between the US and Iran have pushed oil prices toward $100 and triggered warnings of a severe European diesel shortage, roiling equity markets and corporate earnings.
Brent crude surged to $91.41, its highest level since June, before easing back to $89.07 after Iran signalled ongoing back-channel diplomatic exchanges. The price spike followed US military strikes on targets in southern Iran and Qeshm Island, which prompted Tehran to target critical Gulf infrastructure and threaten shipping in the Strait of Hormuz.
European equities struggled to find direction, with the Stoxx Europe 600 closing flat and the FTSE 100 down 0.3%. UK gilt yields rose four basis points as investors priced in the inflationary risk of sustained higher energy costs. Energy majors BP and Shell bucked the broader trend, rising 1.5% and 0.7% respectively.
The immediate market concern extends beyond crude production to a critical refining bottleneck, particularly for diesel. Morgan Stanley analysts warned that European diesel inventories are modelled to fall to roughly 299 million barrels by November, the lowest level for that time of year since 2015. "The real bottleneck in the oil system right now is refining, more so than crude," analyst Martijn Rats noted.
This squeeze is being amplified by an ongoing European heatwave straining electricity grids and driving up demand for finished fuels. PVM Oil Associates noted that the Gasoil/Brent crack spread has rallied nearly $25 a barrel since mid-June. "The European continent is at present particularly vulnerable to the lack of finished fuels," analyst John Evans said, warning that prices need only one further incident to push back toward $100 a barrel.
The conflict's economic ripple effects are already visible in corporate earnings. Ryanair reported a 34% drop in first-quarter profit after tax to €538 million, missing analyst forecasts of €579 million. Average fares fell 6% as chief executive Michael O'Leary cited "consumer hesitancy, concerns about EU jet-fuel shortages, economic uncertainty and later bookings" driven by the Middle East crisis.
Segro rejects third Prologis approach
The market turbulence failed to sway Segro in a major M&A battle. The UK warehouse landlord unanimously rejected a third takeover proposal from US rival Prologis valued at £13.5 billion. Prologis said the offer represented a 34% premium to Segro's share price before its interest was revealed, but Segro maintained its stance that the approach significantly undervalues the company.
