Opinion

Asia Supply Shortfall Lifts Diesel Spreads in 2018


Global demand growth will outpace supply growth in 2018, according to ESAI Energy's recently published Global Diesel Outlook. This will allow diesel spreads to continue recovering from 2016 lows. The biggest support for spreads will come in Asia-Pacific. Refineries in three of the main exporters in the region – South Korea, Japan, and India – will lower diesel production or keep production flat next year. While growth in Asia-Pacific diesel supplies stagnates, consumption will grow strongly in India and parts of Southeast Asia. This will help tighten regional markets and lift diesel spreads to crude in Singapore.

Asia's exportable surplus of diesel will fall by 130,000 b/d next year, to 540,000 b/d. While regional supplies stay flat, diesel consumption in Asia will rise by 130,000 b/d, to 9.08 million b/d. Demand growth is led by India, where diesel use next year will grow by 60,000 b/d as the economy recovers from the effects of tax reform and demonetization. India's exports will shrink the most among Asian exporting countries, with strong demand growth and no major refining capacity additions planned in 2018. In South Korea, refinery throughput will shrink, further cutting diesel supplies, following three years of strong growth which saw refiners responding to high margins for petrochemical feedstocks.

“In 2015, an oversupply of diesel triggered inventory builds and a collapse of global diesel spreads to crude in 2016,” explains Amrit Naresh at ESAI Energy. “The recovery of spreads began this year and will continue in 2018. While Asian markets lead the recovery, Europe and the U.S. will also be sources of strength for diesel spreads next year. Still, as European refiners cut throughput, growth in exports from Russia and the Middle East will limit the scope for an even bigger recovery of diesel spreads.”



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