DIESEL supply in Asia is set to jump in 2024 fuelled by new refineries in the Middle East and robust exports from China, and is likely to outpace the region’s world-leading demand growth, analysts and trade sources said.

As a result, diesel prices are expected to fall, meaning Asia’s refiners face a second consecutive year of sliding profit margins for the fuel used in cars, trucks and power generators.

In 2022, average diesel profit margins soared to an all-time high of US$45 a barrel, as supplies from top exporter Russia were disrupted and global inventories sank to a record low.

Margins dropped nearly 50 per cent in 2023 after Beijing allowed more fuel exports and refiners around the world ramped up output.

In 2024, with extra supply, average diesel margins, called “cracks”, could fall 23 per cent to about US$18 a barrel, according to forecasts from consultancies Rystad Energy, Sparta Commodities and FGE.

Supply in Asia, including the Middle East, is expected to rise around 3.8 per cent year on year in 2024, estimates from consultancy Wood Mackenzie showed.

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“Diesel cracks, not only in Europe but globally, have witnessed a downward trend since October 2023, (and are) likely to persist into 2024,” said Sparta’s analyst James Noel-Beswick.

Margins are likely to shrink even as Asia, led by India, remains the driver of global diesel demand in 2024 via the transport and construction sectors, analysts said.

The region’s demand is forecast to grow by around 3 per cent in 2024, estimates from Rystad Energy showed. This compares with around 1 per cent growth globally, according to the International Energy Agency.

Asia’s demand growth of 260,000 barrels per day (bpd) is mainly due to China and India, accounting for 164,000 bpd and 113,000 bpd respectively, said Rystad Energy’s Shenglan Niu.

Burgeoning Middle East supplies

Diesel supply from the Middle East will rise when Kuwait’s Al-Zour and Oman’s Duqm refineries, both new, crank up output and exports.

Monthly average diesel output is forecast to rise to 3.12 million bpd in 2024 from 3.04 million bpd in 2023, according to FGE, while year-on-year demand growth in the Middle East is likely to be flat.

Although most of the Middle East’s diesel exports tend to head to Europe, Sparta’s Noel-Beswick said there are concerns regarding demand erosion in the West, which could result in more barrels going east.

Vortexa analyst Serena Huang said Singapore, Malaysia and Pakistan are likely destinations for Middle East exports.

“This would mean more competition with Asian barrels, which could weigh on regional product cracks if demand lags,” she said.

Trade sources expect low-priced Russian barrels to continue heading to Latin America, Turkey and Africa next year, not to Asia, amid Western sanctions.

China wild card

China’s fuel exports may rise at least in the first half of 2024, trade sources and analysts said, as traders expect Beijing to issue more quotas that will allow refiners to export excess supply and capitalise on higher prices overseas.

Diesel exports likely surged more than 19 per cent in 2023 from the previous year, accounting for slightly more than 30 per cent of China’s total refined fuel exports, China customs data showed.

Expectations of higher exports also come amid mixed forecasts for China’s domestic diesel consumption.

China’s diesel demand is expected to stay flat or rise by up to 4 per cent depending on economic growth, according to estimates from three China-based trade sources, FGE, Energy Aspects and Rystad Energy.

Also, two new refineries – CNOOC’s Ningbo Daxie and Shandong Yulong Petrochemical – are expected to increase diesel output by about 150,000 bpd in the second half of next year, trade sources said.

Processing bigger volumes of heavier crude or fuel oil at refineries could also increase diesel output, one of them said. REUTERS