BAKU, Azerbaijan, July 19
By Leman Zeynalova - Trend:
Diesel price recovery may be pushed back into late-H221-2022 by slower vaccine deliveries, Trend reports with reference to Fitch Solutions.
Global diesel prices have seen broad recoveries over the past few months edging closer to pre-Covid price levels alongside continued economic reopenings and comparable recovery in Brent crude. Average diesel prices in New York, Rotterdam and Singapore are shown to have gained over 30% across all three hubs on a quarterly basis in Q1 2021, as more economies ease tight domestic restrictions and Covid-19 vaccines are handed out. The rebound in diesel following a downbeat 2020 is being accompanied by a comparable rebound in benchmark Brent which has also climbed more than 70% in value since hitting a nadir in October 2020, on the back of improving market sentiment, vaccine optimism, seasonal demand across the northern hemisphere, OPEC+ output management and geopolitical premia. The outlook for diesel over 2021 is broadly bullish with prices expected to benefit from the global post-pandemic recovery, although the immediate picture is more mixed, as elevated infection rates continue to drag on demand growth in several key markets.
A persistent volatility in new Covid-19 cases continues to stand in the way of a stronger diesel demand recovery from manifesting in key markets. The number of daily new cases is again on the rise since February in part due to emergence of new variants and lax observance of restrictions. 11 of the 13 largest diesel consuming markets in the world led by the US, Brazil, India and western Europe are seeing cases still on the rise or remaining stubbornly elevated, derailing recoveries across key diesel-consuming sectors such as manufacturing, construction, freight, locomotives and shipping. Effective Covid-19 vaccines are being made available at accelerated rates and inoculation efforts are expected to begin to bear fruit in H221 particularly for the wealthier DMs. In contrast, vaccine deliveries may be slower for many EMs resulting in higher risk of renewed waves and pushing back meaningful recoveries into late-H221 and 2022.
The long-term view is still for the global diesel market to remain in a surplus well into the mid-2020s due to rampant growth in global refining capacity and structural demand slowdowns across DMs. An onslaught of new refining capacity additions is due to hit the global oil market over the next five years adding to the supply and demand imbalance. Of the 3.4mn b/d of new capacity that are set to be constructed between 2021 and 2025, 54% of it will be built in Asia with the bulk of the newbuilds designed to maximise the production of middle distillates and lower-sulphur fuels. Excess diesel created by the surge in refining output may struggle to find homes, more so as DM growth slows. Indeed, more of the world’s DMs have set forth aggressive energy transition plans and have committed to at least a partial phasing out diesel cars from roads within the next few decades.
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