Global diesel market to remain oversupplied deep into next decade

Oil&Gas Materials 9 June 2020 13:18 (UTC +04:00)
Global diesel market to remain oversupplied deep into next decade

BAKU, Azerbaijan, June 9

By Leman Zeynalova – Trend:

The global diesel market is forecast to remain oversupplied deep into the next decade driven by rampant growth in global refining capacity and slowing demand growth in the developing markets (DMs), Trend reports citing Fitch Solutions.

“This will be partly offset by stronger growth prospects in the emerging markets (Ems). An onslaught of new refining capacity additions forecast globally for the next five years inform our expectation for the diesel market to remain oversupplied for the foreseeable future,” reads the report released by Fitch Solutions.

The company believes that of the 6.4mn b/d of new capacity that are set to be constructed out to 2024, 3.9mn b/d or 61 percent of it will be built in Asia wherein most of the new capacity will be optimised to maximise middle distillates output.

“A prolonged weakness in global refining margins, next to a chequered outlook for demand, may force a rethink of some of these projects, especially ones with higher cost structure and simpler configuration, although impact on future diesel supply would be marginal,” said the report.

Fitch Solutions points out that global diesel prices are showing nascent signs of recovery after months of being anchored near record-lows amid broader weaknesses in crude oil prices and a global growth slowdown emanating from Covid-19.

“The pandemic effects have swept across global economies with some of the world’s largest diesel markets including China, the US and much of Western Europe among the most heavily affected by the virus. Lockdowns and strict containment measures introduced to combat the virus have triggered large GDP growth revisions to the downside, while hitting the brakes on diesel intensive activities such as manufacturing, construction, freight, locomotives and shipping. The reverberations continue to be felt globally as prices across Rotterdam, New York and Singapore hubs have further declined from respective bottoms reached in Q120. All three hubs have lost an average of 32 percent of their value coming into Q220 on a quarterly basis, and have seen average premiums to Brent narrow to USD4.2/bbl from USD11.6/bbl in the previous quarter,” the report reads.

An improved outlook for crude oil prices also supports a better outlook for diesel, according to Fitch Solutions.

“The supply picture has seen marked improvements in the past few weeks due to strong initial compliance to the OPEC+ production cut deal that was reached in April. The group has agreed to extend the current level of cuts into July, as opposed to phasing down the cuts as had been previously agreed. Further signs of tightening in the physical oil market, next to a sustained demand recovery, would buoy sentiment and provide a lift to the prices of crude and broader fuels basket including diesel,” said the company.


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