The global diesel market is tight despite the failure of the US and European economic slowdowns and a strong recovery in China to enter the crop and heating season with lower-than-average inventories.
Prices for middle distillates and diesel futures have skyrocketed in recent weeks, outpacing the rise in Brent oil prices and moving into the $80-$85 per barrel range from the previous $75-$80 range.
Portfolio managers and speculators are more inclined to bet on higher diesel prices in the U.S. and Europe, as middle distillate stocks are seasonally short and stockpiling usually precedes the heating season.
Diesel inventories, while not as low as they were at this time last year, are still well below historical averages, and refinery shutdowns, higher-than-expected demand, and a cold winter, among other factors, have pushed the distillate market further. It suggests that it may tilt. We will run into deficits, prices will soar, and again weigh on the movement of goods and inflation.
Diesel inventory lower than usual
Distillate stocks, including diesel, are lower than normal in the US.
The Energy Information Administration said in its latest weekly oil inventory watch, US distillate fuel inventories increased by 300,000 barrels in the week ending Aug. 11. report last week. Distillate fuel inventories are now about 16% below the five-year average for this time of year. Distillate demand is down from this time last year, but total US distillate production has also trended downward in recent weeks. EIA data show.
In Europe, stockpiles of diesel types, which are held independently at the Amsterdam-Rotterdam-Antwerp (ARA) oil trading hub, also appear to be significantly tighter, analysts said.
In a note on Friday, consulting firm FGE said global middle distillate stocks rose in all regions except the ARA last week, despite a steep reversal that has hampered stock formation.
“Prices have been broadly flat for the past few weeks, but have continued to slip further and further below historical ranges for this time of the week, putting upward pressure on already high middle distillate cracks,” FGE said. Stated.
ING strategists Warren Patterson and Ewa Muncy write: Notes on monday,
“The market appears concerned about the fact that ARA gasoline inventories still appear fairly tight and have not started to gradually build up towards the start of winter.”
Bullish Bet on Diesel Rises
Hedge funds have become increasingly bullish on distillates this summer as a result of declining inventories. European ICE gasoline net long positions (the difference between bullish and bearish bets) increased by 5,703 lots to 93,941 lots last week, according to exchange data cited by ING. It was the largest net long position in diesel futures in Europe since March 2022.
Across the Atlantic, net long positions (ULSD NY NYMEX) in ultra-low sulfur diesel delivered at New York Harbor also hit an 18-month high in early August.
Analysts expect the diesel market to tighten in the US and Europe going forward.
Emma Hausham, refining research analyst, said: “Our current forecast is that the outlook for European diesel/gasoline supply is tight. This is due to the expected decline in diesel/gasoline yields due to unplanned plant outages.” She spoke of consultancy Wood Mackenzie’s petroleum products market. bloomberg.
“Demand is expected to increase month-on-month through November,” Hausham added.
refine margin jump
Reflecting tighter crude and fuel supplies, OPEC+ and Saudi Arabia are withholding from the market most of the best medium sour crude grades for processing into diesel, resulting in lower distillate yields and refinery margins here. strengthened for several weeks.
The International Energy Agency (IEA) expects global refinery throughput this month to hit a summer peak of 83.9 million barrels per day (bpd), an increase of 2.4 million barrels per day from May and 1 The International Energy Agency (IEA) announced that production is 2.6 million barrels per day higher than last year. report towards August.
“Rising production of refined products has failed to alleviate tight product markets, pushing the rift in gasoline and middle distillates to near record highs,” the IEA said.
Tight gasoline and diesel markets pushed profit margins to their highest level in six months, the agency said.
“Additional supplies of heavy sour crude will allow refiners to step up activity and help ease tensions in product markets. 2.2 million barrels per day in the fourth quarter and 1.2 million barrels per day in the fourth quarter.There is a risk that prices will rise further.”
One of the areas of weakness in the global diesel market is China, with analysts recently Downgraded Demand outlook for China’s slower than expected economic growth. China’s diesel demand is expected to rise by 3.81 million barrels per day in the second half of the year, according to Rystad Energy. This is a downward revision from the previous forecast of 3.9 million barrels per day.
But high profit margins are driving a surge in Chinese diesel exports, which rose 153.1% in July compared to the same month last year, according to the data cited. Reuters. From the beginning of the year to July, China’s diesel exports increased by 247.1% compared to January-July 2022.
Diesel stocks in OECD countries are below their five-year averages, the US economy is on a soft landing, Europe is not in the midst of a major recession, and China’s rebounding economic performance is set to lead to another diesel bull market later this year. may start.
By Tsvetana Paraskova, Oilprice.com
