Diesel margins nearly double as El Nino spurs oil demand in South Asia

Diesel margins up as South Asia deals with extreme heat

The uptick in diesel margins may be short-lived as India is now preparing for the monsoon season. SkyNetWeather.com photo.

The uptick in diesel margins may be short-lived as the monsoon season is closing in on India. SkyMetWeather.com photo.

By Florence Tan and Seng Li Peng

SINGAPORE, June 2 (Reuters) – Diesel margins have been boosted as South Asia power generators are seeing increased demand thanks to turn around as extremely hot weather.

Asia has been struggling to absorb excess diesel supply as an economic slowdown across the region curbed consumption for the industrial fuel. The International Energy Agency warned last month that global gasoil demand was crumbling.

But the fuel’s crack spread, or the profit a refiner gets for producing a barrel of diesel from Dubai crude, has nearly doubled to $11.74 a barrel on Thursday from its low point this year of $6.22 on April 6 after India, Pakistan and other Asian countries boosted imports.

“The strength in imports into these affected countries will continue in coming weeks,” analysts at energy consultancy FGE said.

“The El Nino phenomenon is expected to last till June, after which conditions should normalize.”

India imported 510,000 tonnes (126,650 barrels per day (bpd)) of diesel in April, the biggest volume in five years, as state-owned refiners ramped up imports after supplies from private companies became too expensive in the absence of discounts on taxes and shipping.

Pakistan bought 215,000 tonnes for May in a rare move due to summer demand and supply disruptions caused by a recent strike at Kuwait Petroleum Corp, its long-term supplier.

Vietnamese trading company Petrolimex doubled gasoil purchases in April to 140,000 tonnes from March, and maintained the same volume in May.

Those purchases cut Asia’s diesel surplus, which is forecast by FGE to drop by about 50,000 bpd in the second quarter from the same period a year ago.

The proportion of middle distillates against overall oil stocks held in Singapore, the region’s oil hub, has fallen to multi-year lows after refiners across the region optimized output of gasoline, which has seen strong demand growth.

But the frenzy may be short-lived as India and Vietnam are showing signs of slowing down their diesel purchases, traders said.

“Indian Oil Corp (the main diesel importer) is reducing its imports now because of the monsoon,” said a middle distillates trader based in Singapore.

Petrolimex’s June purchases have also slowed.

“The raining season is coming across Vietnam and demand (for gasoil) is easing off,” said a trader who tracks trade flows into the country.

Without the weather-induced incremental demand in the second half of the year, Asia’s gas-oil surplus is expected widen again to an average of 935,000 bpd in the second half of this year, up 77,000 bpd from a year ago, FGE said.

(Reporting by Florence Tan and Seng Li Peng; Editing by Christian Schmollinger)

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