Global production struggles to meet growing needs despite Covid-19 uncertainties
Refineries worldwide are experiencing unprecedented profits from gasoil production, as robust demand and constrained supply drive prices to multi-year highs. Analysts point to resilient consumption patterns and limited stock availability in key markets as the main factors behind this surge, despite lingering concerns about the economic impacts of the Omicron variant.
Demand Surges Despite Global Covid-19 Cases
Gasoil, used to power trucks, generators, and industrial machinery, has maintained high demand levels even as Covid-19 cases rise globally. Unlike earlier pandemic phases, government measures to curb virus transmission have been less restrictive, supporting industrial and transport activities.
Adding to the pressure, strong jet fuel prices have limited the use of middle distillates in blending processes for diesel production, further tightening the diesel supply chain.
Declining Stockpiles in Key Regions
Inventory levels in major hubs, including Singapore, Amsterdam-Rotterdam-Antwerp (ARA), and the UAE, have dropped to historic lows, sustaining high refining margins. In Asia, refining margins for 10 ppm sulphur gasoil hit their highest levels in over two years, increasing by nearly 24% this month compared to December.
“Asian demand for diesel has been particularly strong from markets like Australia, India, and Southeast Asia, but supply has struggled to keep pace,” noted Serena Huang, a Vortexa analyst.
Export Constraints Worsen Supply Tightness
China’s limited diesel export quotas and India’s subdued export levels in January have constrained regional supply. Domestic consumption in key exporting countries has left minimal cargo for international markets.
Consultancy JBC Energy highlighted a significant increase in Indian diesel demand, nearing pre-pandemic levels, which has restricted export volumes. Similarly, while South Korean and Japanese diesel exports have risen since December, overall flows remain below historical averages.
European and U.S. Markets Feel the Impact
Reduced exports from Asia and the U.S. have tightened supplies in Europe, where diesel margins have soared to their highest levels in five years. Limited gasoil blending due to high jet fuel prices has further amplified the tightness.
European gasoil stocks in independent storage facilities dropped 8% in mid-January, reaching their lowest point in years. Maintenance activities at Shell’s Pernis refinery, the largest in Europe, are expected to exacerbate supply constraints until June.
In the United States, distillate inventories, including diesel and heating oil, fell by 1.4 million barrels last week, reflecting similar trends.
Market Outlook Remains Positive
Experts anticipate the opening of arbitrage from Asia to Europe, which could ease supply pressures. However, refiners remain cautious about increasing production amid ongoing uncertainty around Omicron’s potential economic effects.
“The underlying demand for gasoil remains robust, supported by cautious refinery operations and a focus on maintaining stable margins,” said Richard Gorry, Managing Director at JBC Energy Asia.
