Global diesel market to remain oversupplied deep into 2020s
BAKU, Azerbaijan, Sept.22
By Leman Zeynalova – Trend:
The global diesel market is forecast to remain oversupplied deep into the 2020s driven by rampant growth in global refining capacity and slowing demand growth in the developed 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. Of the 5.4mn b/d of new capacity that are set to be constructed between 2020 and 2025, 2.8mn b/d or 52 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 the current chequered outlook for demand, may force a rethink of some of these projects, especially ones with higher cost structures and simpler configuration, although the impact on future diesel supply from this would be marginal.
“The outlook for diesel is broadly constructive over the longer term as virus effects dissipate, although growth will become more divergent between the DMs and EMs. Slowing growth in China and the US certainly represents a major downside risk, although the size of demand in both markets will continue to dwarf global peers in absolute volume terms. The slowdown in DM diesel demand will be most pronounced in Europe, as developed Europe’s growing aversion to diesel intensifies. The region’s long-term policies will continue to attempt to eradicate the fuel from roads as part of broader moves to cut pollution and tackle climate change – indeed, the share of diesel cars among all newly registered cars has climbed down to 30.5 percent in 2019, the lowest share since 2001. The political and economic outlook for the eurozone remains in a state of flux, as the UK and EU remain divided on key contentious issues amidst ongoing talks to secure a trade deal. A ‘limited’ trade deal remains the most likely outcome, although risks are weighted to the downside. Any delays to investment, shifting cost bases, trade disruptions and cuts to structural funding post-Brexit risk creating significant disruptions in key diesel-intensive sectors such as agribusiness, construction and manufacturing, especially in the UK, which would trigger further downward revisions to our forecasts.
“The EM outlook is comparatively more bullish driven by strong demand growth across Asia. Asia’s DMs, like their European counterparts, have proposed phasing out diesel cars so as to cut on-road emissions, although the magnitude of the policy push is expected to vary across markets. Asia’s EMs on the other hand are still very much reliant on diesel to fuel their economy and heavy industries, while the Covid-19 pandemic has only highlighted the importance of providing for lower-cost fuels before any pursuit of costlier clean energy. State plans to ramp up infrastructure spending in China, Indonesia, the Philippines, Thailand and Vietnam as part of Covid-19 economic recovery plans should also boost construction sector diesel use in these markets. China’s policy space to roll out stimulus measures, often centered on infrastructure and heavy industries, is set to significantly narrow in the coming decade, although the medium-term projects pipeline is still packed with projects in the transport, power and utilities space that bode well for diesel use,” reads the report released by Fitch Solutions.
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