Asian refiners are poised to grapple with a surplus of diesel supply in 2024, driven by the commissioning of new refineries in the Middle East and robust exports from China.
Analysts and industry sources predict that this surge in supply will surpass the region’s leading demand growth, resulting in a decline in diesel prices. Consequently, Asian refiners are anticipated to face a second consecutive year of diminishing profit margins for the fuel commonly used in automobiles, trucks, and power generators.
In 2022, average diesel profit margins reached a record high of $45 per barrel due to disruptions in supplies from Russia and a global decline in inventories. However, margins plummeted by nearly 50% in 2023 after increased fuel exports were permitted by Beijing, coupled with a rise in global refinery output.
Projections from consultancies, including Rystad Energy, Sparta Commodities, and FGE, suggest that average diesel margins, also known as “cracks,” could decline by 23% to approximately $18 per barrel in 2024.
The estimated 3.8% year-on-year increase in supply in Asia, including the Middle East, in 2024 is based on data from Wood Mackenzie.
Sparta analyst James Noel-Beswick notes a persistent downward trend in diesel cracks globally since October 2023, a trend expected to continue into 2024. Despite Asia, particularly India, leading global diesel demand through the transport and construction sectors, analysts predict that shrinking margins will persist.
Rystad Energy forecasts a 3% growth in diesel demand in Asia in 2024, primarily driven by China and India, contributing 164,000 bpd and 113,000 bpd, respectively. This stands in contrast to the International Energy Agency’s global estimate of 1% demand growth.
The Middle East is anticipated to contribute to the surplus, with Kuwait’s Al-Zour and Oman’s Duqm refineries increasing output and exports.
While most Middle East diesel exports traditionally head to Europe, concerns exist regarding potential demand erosion in the West, leading to more barrels being directed to Asia.
Vortexa analyst Serena Huang suggests that Singapore, Malaysia, and Pakistan are likely destinations for Middle East exports, posing competition with Asian barrels and potentially impacting regional product cracks if demand lags.
