By ERIC YEP
China's diesel consumption may strengthen in the next few
months on agricultural demand, but India's diesel demand is
unlikely to pick up significantly with monsoon rains expected
on time this year, analysts said.
While the fuel demand situation in India and China is quite
different, both diesel-guzzling countries are expected to
temper diesel exports further, which will reduce oversupply and
support product differentials in Asia's middle distillates
India and China are major producers
and consumers of diesel, a fuel vital to economic growth due to
its wide range of uses, and slowing domestic demand had
resulted in large volumes flooding regional markets.
In the last six months, China's diesel exports were at their
highest since 2010, averaging around 90,000 bpd due to weak
industrial activity and to reduce high product inventories
built up last year.
"The latest data suggest that destocking efforts by Chinese
refiners have worked to reduce inventories back to seasonal
levels," analyst Sijin Cheng at Barclays said in a note.
She said while some refineries were under scheduled maintenance from mid-April to
mid-May, others cut diesel yields to their lowest levels in 10
years, and now overall demand appears to be growing
"Agricultural demand for diesel will see a boost from wheat
harvesting, which began in late May and will peak in
mid-to-late June," Ms. Cheng said, adding that refinery runs may rise as refineries
restart and ramp up to meet this agricultural demand.
Diesel demand in India, however, remains dismal.
India's diesel exports were high since late last year, due
to weak domestic demand, new refining capacity and high run
The market was betting on India's diesel consumption to
surge in the summer months, to counter expected power
shortages, but this year's summer demand has been weaker than
expected due to slower economic activity.
"[Diesel] demand is not so great, just ok. In fact, gasoline
demand is better for now," a Mumbai-based trader said.
"Faced with sluggish domestic demand and weaker export
margins, we expect that Indian refiners could likely opt to
ease both runs and exports over the next few months,"
consulting firm Facts Global Energy said in a note.
It said this year's monsoon season is expected to be normal,
which will be bearish for Indian diesel demand over the next
three to four months. Delays in the arrival of the monsoon
usually result in extended summer months, shortages of
hydroelectric power and increased fuel demand for
Dow Jones Newswires