Baku, Azerbaijan, Oct.19
By Leman Zeynalova – Trend:
Broad-based demand growth across the global emerging markets will support diesel prices over the coming years, according to the report of Fitch Solutions Macro Research (a unit of Fitch Group).
Although the company notes growing risks to the downside from rising oil prices and escalating trade tensions.
“We expect the implementation of the IMO’s (International Maritime Organization) stricter ruling on shipping emissions to increase the share of diesel in the global consumption mix from 2020, and do not rule out significant price volatility in the early stages of the policy’s adoption, as the supply-side scrambles to catch up to demand,” said the report obtained by Trend.
Fitch Solutions expects diesel prices in Europe to remain elevated, supported by steady economic growth, a large dies el-based transport fleet and a forecast uptick in heating demand over the winter months.
“Our global supply and demand balance forecasts continue to show that the market will remain oversupplied well into the next decade, primarily due to robust refining capacity additions planned across Asia and the Middle East,” said the company.
Fitch Solutions believes that the pace of consumption growth in the US, the world's largest diesel market, will remain subdued, averaging annual growth of just 0.6 percent over 2018 -2022. “Growth in China will be comparatively stronger, although risks lie firmly to the downside amid persistent macroeconomic headwinds, cooling industrial sector growth, adoption of stricter environmental policies and rising competition from alternative-fuel vehicles in the trans port sector.”
Risks to price outlook are the following:
- A sharp rise in oil prices, coupled with insufficient or a rollback in fuel subsidies, may lead consumers to scale back fuel consumption, raising the risk of demand destruction across global EMs.
- A more widespread government crackdown on older diesel cars in major European cities would prove negative for overall demand and fleet size growth.
- A surge in trade protectionism could derail global trade and negatively impact economic growth, which would hit consumption in the freight, construction and mining sectors.
- Compliance slippage to the IMO's global sulphur cap could see post-2020 diesel demand underperform expectations; development of enforcement mechanisms still remains in a nascent stage.
- Stronger investment into expanding gas-fired and renewables power generation capacity across the Asian EMs, would accelerate diesel’s ongoing decline in the power sector.
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