Low volumes herald soft Asia diesel market
ASIA’S exports of diesel slumped to a multi-year low in February, and while volumes may recover in March on rising shipments from China and India, it’s likely prices will come under further downward pressure.

A total of 6.6 million tonnes of diesel were exported from Asia in February, down from January’s 8.13 million and the weakest monthly figure for at least two years, according to data compiled by LSEG Oil Research.

Despite the drop in diesel supply, the profit margin on the key transport fuel remained weak, suggesting demand growth remains tepid at best.

The profit of making a barrel of gasoil, the building block for middle distillate fuels such as diesel and jet kerosene, at a typical Singapore refinery ended at US$22.01 on Monday, down from the previous close of US$22.17.

The margin has been trending weaker since August last year, when it peaked at US$36.13 a barrel on Aug 28.

The profit on gasoil is likely to come under further pressure this month as higher volumes of diesel are expected to be shipped in Asia, especially from leading exporters China and India.

China’s exports of diesel were 713,290 tonnes in February, down from January’s 986,200, according to LSEG, as refiners kept more of the fuel for the domestic market to meet any increased demand over the week-long Lunar New Year holidays, when millions of people travel to see relatives.

With key domestic sectors like construction and manufacturing remaining under pressure, it’s likely that China’s refiners will seek to lift exports in March and April, especially since the profit margin on diesel remains attractive to them, assuming they are able to make the fuel from discounted crude oils from Russia and Iran.

India’s shipments of diesel were 2.01 million tonnes in February, down from 2.02 million in January and some 29% below the recent peak of 2.84 million in December.

It’s expected that more Indian diesel will head to Asia as cargoes are diverted from Europe, partly because of lower demand as the Northern Hemisphere winter ends and partly because of the attacks on shipping in the Red Sea by Yemen’s Houthi rebels, which has forced vessels to take the longer, and costlier, route around the Cape of Good Hope.

This trend can already be seen in the LSEG data, with India’s diesel exports to the West being assessed at 665,960 tonnes in February and 280,000 in January, a marked drop from December’s 1.28 million and 1.12 million in November.

India’s exports to Asia were 700,440 tonnes in February and 716,420 in January, up from 371,320 in December and November’s 393,050.

If India continues to switch diesel exports to Asia from Europe, and China does export more as expected, the profit margin on diesel is likely to come under further pressure.

The main factor that may ease some downward pressure is Asia’s refinery maintenance season gets underway in March and typically lasts through April and May.

Asia’s other main refined product, gasoline, is showing some similarities to diesel, insofar as February export volumes were weak, with LSEG estimating shipments of 4.51 million tonnes, down from 5.64 million in January and December’s 6.33 million.

The drop was largely because exports from China dropped to a 16-month low of 679,290 tonnes and those from South Korea hit an eight-month low of 813,350 tonnes.

But unlike diesel, the lower supply of gasoline saw the profit margin on making a barrel of the light vehicle fuel from Brent crude at a Singapore refinery increase.

The margin, or crack spread, ended at US$14.63 a barrel on Monday, up from the previous close of US$14.20, and it has been in an uptrend since the recent low of US$2.11 a barrel on Oct 18.

The crack may remain supported in coming weeks as exports from India, which vies with South Korea as the largest gasoline shipper in Asia on a net basis, are expected to remain constrained amid strong domestic demand. — Reuters

Clyde Russell is a columnist for Reuters. The views expressed here are the writer’s own.
Commentary,AsiaExports,DieselPrices,ChinaExports,IndiaExports,RefineryMargins,SupplyDemand,LunarNewYear,RedSea,CapeOfGoodHope,RefineryMaintenance,BrentCrude
Asia's exports of diesel slumped to a multi-year low in February, and while volumes may recover in March on rising shipments from China and India, it’s likely prices will come under further downward pressure.