Oil investors can find relief as diesel supplies sqeeze in Asian market

February 12
13:28 2018

Oil investors rattled by the threat of US output can find some cheer from diesel demand in Asia. Strong consumption of the fuel — used to power everything from trucks to ships and factories — underpinned crude’s bull run last year, a rally that’s now being threatened by surging American production. Still, while the risk of a crude glut looms, refineries being shut for spring-season maintenance is set to squeeze diesel supplies in the Asian market at a time when demand is being boosted by healthy economic growth. That’s helping alleviate concerns over an expected flood in Chinese fuel exports, which during the years of the global oil price crash exacerbated the industry’s pain by wreaking havoc on regional profits from producing diesel. Returns in Asia from turning crude into diesel in January surged to the highest level since 2014, with appetite for the heating fuel spurred by China’s winter gas shortage and record freezing temperatures in the US. “Diesel, which is used in industrial activities, has been seeing robust demand since last year and the low global inventories for the fuel will continue to support margins,” Ko Gwang-cheol, head of investor relations at South Korean refiner S-Oil Corp., said last month.

Prices will be supported by the “significant growth recovery we’re seeing from the global economy,” he said.

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