London, Feb 10 (BNA): Global diesel supplies are dwindling as refineries struggle to keep pace with a rapid recovery in demand after the pandemic, exacerbating severe global energy shortages that have already driven up prices for gas, coal and crude oil.
At a time when global central banks are concerned about inflation rates we haven’t seen in decades, diesel shortages will raise fuel and transportation costs further and add further upward pressure on retail prices.
Imports of US and Asian diesels that Europe depends on have been limited in recent weeks due to rising domestic consumption for manufacturing and road fuel.
Data issued by the Dutch consultancy Insights Global showed that gas oil stocks, which include diesel and heating oil, which are located in an independent store in the refining and storage area of Amsterdam, Rotterdam and Antwerp in Europe, fell last week by 2.5%.
Regional stocks were at their lowest this time of year since 2008, according to the data, while onshore Singapore stocks of average distillates also fell to multi-year lows of 8.21 million barrels.
“Diesel demand appears to be improving in northwest Europe, but lower refining capacity compared to pre-COVID and lower import levels are putting the market under severe pressure,” said Lars van Wageningen of Insights Global.
Diesel freight prices in Northwest Europe hit $114 a barrel on Monday, the highest since September 2014, while crude oil margins hit a two-year high last week.
Morgan Stanley analysts note that diesel prices reached around $180 per barrel in 2008, driven by the “ultra-tight” mid-distillate market where Brent crude rose nearly $150 per barrel.
“A repetition of that is not our base case, but it is noticeable that diesel prices have been tracking the 2007-2008 period closely in recent months,” they said, adding that they expect crude oil prices to reach $100 per barrel in the second half. from this year.
Last week, a winter storm tested fuel availability in the United States as some utilities prepared to use more distilled fuel oil to meet demand, while South Korea and India were unable to fill the supply gap left by China’s recent crackdown on refined product exports due to their own domestic needs. Read more.
A supply shortage has pushed Asian diesel prices for the benchmark 10ppm gasoil to their highest levels since September 2014.
Refineries generally respond to high margins and low inventories by increasing production. But the International Energy Agency said last month that the global oil refining complex was under pressure, as production capacity fell for the first time in 30 years last year, as shutdowns outpaced new additions. Read more.
Increasing diesel production will also require higher than normal crude processing rates at refineries, with downstream equipment configured to increase medium distillate productivity at the expense of lighter ones.
Instead, a number of refineries – especially in the US – are still running plants at rates below the five-year average to avoid producing too much jet fuel, with demand still lagging behind 2019 levels, leaving companies struggling to identify a clear way to restock Diesel. short term stocks.
“Given investor pressure to scale back investments in fossil fuels and talk of peak oil demand, this backdrop is likely to reduce the incentive to invest in new refining capacity,” said Giovanni Stonovo, an analyst at UBS.
“With fuel demand likely to increase in the next 10 to 15 years, and supply not being able to keep pace, I expect more fluctuations in fuel prices in the future,” he added.
Tightening European supplies pushed the region’s six-month diesel spread to more than $100 a ton on Monday, the biggest drop on record.
The pullback means that spot prices are higher than futures prices, reflecting near-term demand that encourages traders to release oil from storage to sell it.
However, the initial flows of diesel and gasoil to Europe from eastern Suez, Russia, the Baltic states and the United States this month are currently 1.66 million tons, revised down from the previous forecast of 1.83 million tons, according to Refinitiv data, and compared to 4.6 million tons. tons in January.
“We have seen little diesel export from the US Gulf Coast, and no storage being run on clean ships,” said one clean tanker broker in the US.
HF