Europe Faces a Diesel Problem
Europe, one of the world’s biggest diesel consumers, faces a major glut in energy commodities. Combined with weak demand, it weighs heavily on the ability of the region’s refineries to keep running.
European diesel margins hit record lows at the height of the novel coronavirus pandemic in April and May. It’s trending lower again after posting a modest recovery in July, data from benchmark provider S&P Global Platts shows.
Hayal Ahmadzada, chief trading officer at Azerbaijain’s SOCAR said, trading”Gasoil (and diesel) is 40%-50% of refining output. He said it has to be profitable, otherwise refineries just burn cash and must shut down.
The paper market showed some traders expecting diesel cracks to fall close to zero, or even into negative, he said. This would be unprecedented.
He also said, there are too many refineries for current demand. Adding some won’t be able to operate at those levels for much longer, he added.
The easing of lockdowns in recent months across Europe has boosted demand. Some countries are seeing the recovery stall.
Diesel deliveries in August to the domestic market were around 9% lower than July levels at 2 million cubic metres. This is according to leading Spanish fuel distributor CLH.
A recovery which started in mid-April in road fuel demand has stalled in the past four weeks. This was based on experimental data from Britain’s Department for Business, Energy & Industrial Strategy.
In commodities, the diesel market is also afflicted with high stocks.
Europe presently accounts for the biggest share of global middle distillates floating storage globally. This is according to oil analytics firm Vortexa.
At the same time,Vortexa data shows, imports into Europe from other regions have risen this year in August.
Weakness Found Everywhere
Also bearish is the global diesel picture. Trafigura chief economist Saad Rahim said its stocks are off the charts in the United States.
Commodity news reports U.S. refiners are constrained by high distillate stocks and weak demand. Some of them are planning to keep runs at lowered rates to manage the glut.
JBC Energy said, middle distillate weakness occurs in all regions. Asia is the hardest hit, given its structural length in gasoil/diesel and jet.
Rahim said that in China, independent refiner stocks of diesel/gasoil are nearly three times their normal levels. He also said, one needs either aggressive demand or refinery runs to fall.
