In 2025, the global diesel price will be supported by refinery closures
Analysts and traders said that the global diesel market would likely see a price boost in 2025 due to the closing of around 1% of the refining capacity. This will offset the current weakness of the market and the structural downward pressure caused by the shift towards cleaner fuels.
Markets end 2024 in a shaky state, despite the peak season demand. Margins in key energy hubs around the world, such as Singapore, Northwest Europe, and the Gulf of the United States, have fallen from November's high levels, due to the return of some refineries after maintenance shutdowns.
Calculations show that a total of 1 million barrels of refinery capacity per day in Europe and America will be permanently closed next year due to low profits, while the world demand is forecast to increase slightly.
Natalia Losada, an analyst at Energy Aspects, said that "for 2025, we're constructive on European Diesel prices because of the capacity closures and still low margins which will keep utilisation rates relatively low."
Currently, the seasonal demand offers limited support.
FGE Energy, a consultancy, expects European demand for diesel and gasoline to fall by 230,000 bpd over the course of January and December despite forecasts that winter in the northern hemisphere will be the coldest it has been in ten years due to low road fuel consumption.
They added that the return of refineries such as Saudi Arabia's Yasref, and Kuwait's Al Zour this month from maintenance will boost Middle East supplies.
The price of Asian diesel cracked has fallen to an average of less than $15 per barrel in December.
On Nov. 26 U.S. ultra low sulphur crude oil futures reached a $26 premium per barrel against West Texas Intermediate crude oils futures, the highest level since July. However, the crack has since mellowed to a two-month-low of less than $22 on Dec. 5.
Margins in Europe
Support in 2025
Distillate fuels such as diesel and gasoil can be used for a variety of purposes, including motor fuels, heating and powering factory.
The demand for cleaner fuels has been reduced by the global shift of car and truck fleets towards renewable or cleaner fuels. This is particularly true in China.
The International Energy Agency still expects the demand for gasoil and Diesel to grow by 95,000 bpd next year, up from the 180,000 bpd decline this year. Traders and analysts also say that there are many other factors which could support the market until 2025.
Refineries that have closed include the Grangemouth refinery in Scotland, LyondellBasell Industries’ 263,776 bpd Houston facility and Phillips 66’s 139,000 bpd Los Angeles plant. Gunvor Group announced plans on December 10 to stop fuel production at their 75,000 bpd Rotterdam refinery.
JP Morgan predicts that European diesel margins will trade between $17 and $ 19 per barrel in 2020, increasing to $21 by 2026 due to refinery closures exceeding the contraction of demand. It expects U.S. profit margins to be strong, with an average of $25 in 2025, and $28 by 2026.
As the industry shifts away from dirty fuel oil, the new shipping regulations that will come into force in May and make the Mediterranean an Emission Control Area are also expected to boost gasoil demand.
Two traders say that while Asian refiners, who usually export to Europe, will benefit from the reduced European capacity of refineries, they expect Asian prices to remain under pressure next year due to new refinery expansions and lighter maintenance shutdowns.
Calculations show that the new additions in China, India, and Indonesia to their refining capacities will likely reach more than 800 000 bpd by next year.
FGE predicts that Asia's diesel cracked will average less than 14 dollars a barrel in the first half of next year, which is slightly lower or steady compared to current levels. Reporting by Ahmad Ghaddar and Shariq Khan; Additional reporting by Nicole Jao, Enes Tunagur, and Alexander Smith; Editing, Alexander Smith
(source: Reuters)
