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Tight supply and heating demand push global diesel margins to multi-year highs

A worker walks along oil pipes at Dinh Vu oil port in Hai Phong city, 100 km (62 miles) east of Hanoi March 14, 2012. REUTERS/Kham

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  • Cracks supported by stronger than expected demand and tight supplies
  • Inventories in major malls at historic lows

Jan 21 (Reuters) – Refiners around the world are reaping the highest profits from diesel production in years on stronger-than-expected demand and tight supplies despite concerns over the impact of the Omicron coronavirus variant on the world economy.

Demand for fuel used to power trucks, generators and machinery remained strong even as COVID-19 cases rose across the world, with measures taken by governments to curb the spread less severe than in 2020 , traders and analysts said.

High jet fuel prices have also reduced the availability of middle distillate to blend into the diesel pool, they added.

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Stronger-than-expected demand drove stocks in major trading hubs such as Singapore, Amsterdam-Rotterdam-Antwerp (ARA) and the United Arab Emirates to their lowest in years, supporting prices and refining margins at worldwide.

Prices jump due to tight supply and winter demand

Asian refining margins for the benchmark grade of gas oil with a sulfur content of 10ppm hit more than two-year highs, profiting nearly 24% this month from December.

“Asian demand for diesel has been robust, particularly from Australia, India and Southeast Asia, but supply hasn’t been able to keep pace,” Serena said. Huang, analyst at Vortexa.

China’s diesel exports remained constrained by tight export quotas, while India’s exports in the first two weeks of January were also weak compared to previous quarters, Huang added.

Analysts expect lower exports from the East Suez region as major suppliers face strong domestic consumption, leaving them with almost no cargo to ship.

“A 140,000 barrels per day increase in Indian demand month-on-month, now almost equivalent to 2019 levels, limits the overall volumes available for export,” consultancy JBC Energy said in a statement. a rating.

South Korean and Japanese diesel exports have also increased since late December amid increased flows, but cumulative flows remain lower than the consultancy has seen in previous years, he added.

Singapore’s middle distillate stocks rose slightly in January but remain close to December levels, which were the lowest since May 2018, according to Refinitiv data.

Refiner profits from diesel production hit multi-year seasonal highs in January on tight supplies, heating demand despite Omicron variant

FEWER ARBITRATION SUPPLIES

Lower shipments from Asia and the United States have tightened supply in Europe, pushing European benchmark diesel cracks well above the five-year average.

European diesel margins are trading at their highest level in five years, in part due to skyrocketing jet fuel prices, which means refiners are mixing less with the diesel pool, traders said.

Diesel stocks held in independent storage in the Amsterdam-Rotterdam-Antwerp (ARA) refining and storage area fell 8% to 1,686 million tonnes in the week to Thursday, according to data from the Dutch consultancy. Insights Global, well below their 5-year average for this time of year of around 2.475 million tonnes.

Adding to the tightness, Shell’s 400,000 bpd Pernis refinery in the Netherlands, the largest in Europe, will go into maintenance until June.

However, traders expect arbitrage from Asia to Europe to open very soon, which could lead to a large flow of diesel.

In the United States, inventories of distillates (USOILD=ECI), which include diesel and fuel oil, fell 1.4 million barrels last week to 128 million barrels, the Energy Information Administration said Thursday.

“We would see the underlying support for diesel is relatively healthy demand and a still cautious approach by refiners when it comes to increasing refining cycles largely due to uncertainty over Omicron, although it now seems less of a threat,” said JBC Energy Asia director Richard Gorry.

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Stocks of middle distillates in Singapore, Fujairah and North West Europe hover at multi-year lows

Reporting by Mohi Narayan in New Delhi, Roslan Khasawneh in Singapore, Ron Bousso in London and David Gaffen in New York; Editing by Florence Tan and Simon Cameron-Moore

Our standards: The Thomson Reuters Trust Principles.