The world is experiencing a supply shortage of diesel fuel as the oil
refinery industry is overwhelmed to meet the increasing market needs after
the pandemic.
This phenomenon exacerbated the issue of the world's energy deficit,
resulting in soaring commodity prices for gas, coal and crude oil.
A shortage of diesel fuel will push up fuel and transportation costs, adding
more pressure to retail prices.
Imports of diesel from the United States (US) and Asia, Europe's mainstay,
have been limited in recent weeks due to higher domestic consumption of
manufacturing and road fuel.
Crude oil inventories, which include diesel and heating oil, held in
independent storage in Europe's Amsterdam-Rotterdam-Antwerp (ARA) refinery
and storage tank area, fell 2.5 percent last week, according to data from
Dutch consultancy Insights Global.
Regional diesel stockpiles were at their lowest for the whole year since
2008, according to data, while Singapore's intermediate distillate diesel
stockpile also fell to a multi-year low of 8.21 million barrels.
"Demand for diesel appears to be increasing in (northwestern Europe) but
lower refinery capacity compared to pre-COVID and low levels of imports, put
the market under heavy pressure," said Lars van Wageningen of Insights
Global.
A fishing boat next to a nickel-carrying barge that sank and polluted the
sea in the waters of the tourist destination Gong Beach in Konawe Regency,
Southeast Sulawesi. (Photo: AFP)
Northwest European diesel cargo prices hit $114/bbl on Monday (7/2), the
highest since September 2014, while crude oil margins hit their highest in
two years last week.
Morgan Stanley analysts noted that diesel prices hit around $180 a barrel in
2008, driven by a "very tight" mid-distillate market as Brent crude rose to
close to $150/barrel.
Last week, a winter storm tested the availability of fuel in the US. Several
state companies are preparing to use more refined petroleum to meet demand.
Meanwhile South Korea and India were unable to meet supply shortages
following China's recent export curb policies to meet their own domestic
needs.
Limited supply has pushed Asian diesel prices with sulfur content of 10
parts per mille (ppm) to their highest level since September 2014.
Oil refineries generally choose to increase production when stocks are low
in order to make a profit. But global oil refineries are under pressure.
Its production capacity fell for the first time in 30 years as closures of
existing refineries outpaced construction of new ones, the International
Energy Agency said last month.
Increasing diesel production will also take less time than normal crude oil
processing rates in refineries. They must configure the downstream equipment
to maximize the intermediate distillate yield.
In contrast, a number of refineries, especially in the US, are still
operating refineries at rates below the five-year average to avoid producing
too much aircraft fuel, where demand lags behind 2019 levels.
This leaves the company struggling to identify a clear way to replenish its
diesel supply in the short term.
"Pressure from investors to reduce investment in fossil fuels and talk of
peak demand for oil is likely reducing incentives to invest in (increasing)
new refinery capacity," said UBS analyst Giovanni Staunovo.
"With fuel demand likely to increase in the next 10-15 years, and supply
unable to keep pace, I expect more volatility (fuel prices) in the future,"
he added.
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