By Ahmad Ghaddar, Trixie Yap and Shariq Khan
LONDON/SINGAPORE/NEW YORK (Reuters) – Diesel profit margins are collapsing as new refineries boost supplies and mild weather in the northern hemisphere and slowing economic activity weigh on demand, which puts additional downward pressure on oil prices.
Lower refining margins for diesel, one of the world’s leading industrial and transportation fuels, have already prompted some Asian refiners to reduce the volume of crude oil they process in order to reduce their diesel production.
Falling demand has led to a sharp fall in crude oil prices in recent weeks and OPEC+ producers are meeting in early June to decide the fate of a series of supply cuts agreed since late 2022.
Although the group has not yet started formal discussions, sources told Reuters the group could maintain cuts of 2.2 million barrels per day (bpd) beyond June if demand fails to come through. to straighten up.
Brent crude prices fell to a two-month low below $82 per barrel on May 8 due to rising inventories and falling demand. They clawed back some losses Thursday, but are on pace to lose more than 4% so far this month after four months of gains.
“[OPEC+] “We would … have to contend with mixed performance in refined products markets – gasoline crack spreads have improved steadily, but diesel cracks have deteriorated markedly,” JP Morgan said , adding that he expected the alliance to maintain production cuts beyond June.
European diesel profit margins fell below $16 a barrel in late April, an 11-month low after hitting more than $40 in February.
The difference between U.S. diesel and crude oil, known as the crack spread, fell to a low of $20 in April in major trading centers in New York and the Gulf Coast, from more than 40 dollars per barrel in February, according to a commodity study. Context analysis.
Asian diesel margins averaged $17 a barrel in April, up from $22 in the first quarter.
INCREASING PRODUCTION, WEAKER DEMAND
Analysts say a mild winter weighed on diesel demand over the past two quarters as it led to fewer purchases of heating oil.
The increase in production also weighs on prices. Global refining capacity increased by 2 b/d last year, the highest since 1977, energy brokerage StoneX said, as new projects were launched in Oman, Kuwait and Nigeria.
Refiners will add another 200,000 b/d of diesel capacity this year, StoneX said.
In Europe, where diesel is used more in cars than elsewhere, the transition to hybrid or electric cars is also weighing on demand.
JP Morgan noted that road diesel demand on the continent has contracted by 50,000 b/d over the past year.
In the United States, another type of structural change is underway, with an increasing volume of biofuels replacing diesel.
Demand for petroleum-derived diesel on the U.S. West Coast hit its lowest level in nearly 28 years in January, while consumption of renewable diesel and biodiesel hit a record high, government data shows American.
Meanwhile, slowing industrial activity last month in China, the euro zone and the United States weighed on diesel demand.
“Now that the peak heating season is over, the problem is bigger…
