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US diesel market starts to show weakness, follows gasoline

April 21/2020

MOSCOW (MRC) -- The US diesel market is weakening as the nations economy crashes, cutting demand for the refined product that had until recently been a lifeline for refiners dealing with the sharp fall in gasoline and jet fuel consumption, reported Reuters.

US demand for diesel, which fuels farming equipment and trucks that haul goods across the country, had held up relatively well as governments ordered residents to shelter in homes to curb the spread of the new coronavirus that has killed more than 30,000 people nationwide.

Refiners responded to trucking and farming demand by increasing their slate of diesel as processing margins remained higher.

However, diesel consumption is falling now as well. The four-week average of diesel product supplied - a proxy for consumption - fell to just under 3.9 million barrels per day last week, lowest for the start of April since 2016, Energy Information Administration data showed on Wednesday.

That represents an 8% decline from the year-ago period. Gasoline demand, by contrast, is off by 32% in that same time period. Wednesdays figures for last week showed diesel demand fell by 28% - which, if it persists, shows that deliveries may be starting to decline as the economic pain deepens.

"With job losses mounting, there are nearly guaranteed fewer goods being transported by trucks," said Patrick De Haan, head of petroleum analysis at GasBuddy. "Its a bellwether for the economy, and it doesnt look good."

Margins to refine distillates HOc1-CLc1 have fallen since the end of March and now sit at USD18.43 a barrel, lowest since 2017, Refinitiv Eikon data showed.

Fuel demand has dropped by roughly 30% nationwide, and numerous refiners are idling units and cutting runs to deal with the excess product. But their shift to producing more diesel is increasing supply, a concern as storage space dwindles. Distillate inventories rose to 129 million barrels, the most seasonally since 2017, the EIA said.

In the Midwest, where diesel use is heavy in planting season, storage has started to become an issue, traders said.

"Theres still storage, but were near all-time highs," one market participant said about the Group Three market, which serves the Midwest.

That is translated to lower prices in the spot market. Chicago ultra-low sulfur diesel cash differentials this week fell to 26 cents a gallon below futures, lowest seasonally since 2012.

In the Gulf Coast, prices fell to 8.75 cents a gallon below futures, also the lowest since 2012.

As MRC reported earlier, global oil consumption cut by up to a third. What happens next in the oil market depends on how quickly and completely the global economy emerges from lockdown, and whether the recessionary hit lingers through the rest of this year and into 2021.

We remind that earlier this year, BP said the deadly coronavirus outbreak could cut global oil demand growth by 40 per cent in 2020, putting pressure on Opec producers and Russia to curb supplies to keep prices in check.

We also remind that, in September 2019, six world's major petrochemical companies in Flanders, Belgium, North Rhine-Westphalia, Germany, and the Netherlands (Trilateral Region) announced the creation of a consortium to jointly investigate how naphtha or gas steam crackers could be operated using renewable electricity instead of fossil fuels. The Cracker of the Future consortium, which includes BASF, Borealis, BP, LyondellBasell, SABIC and Total, aims to produce base chemicals while also significantly reducing carbon emissions. The companies agreed to invest in R&D and knowledge sharing as they assess the possibility of transitioning their base chemical production to renewable electricity.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 383,760 tonnes in the first two month of 2020, up by 14% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments increased due to the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 192,760 tonnes in January-February 2020, down by 6% year on year. Homopolymer PP accounted for the main decrease in imports.
Author:Margaret Volkova
Tags:Europe, PP, PE, LLDPE, crude and gaz condensate, homopolymer PP, propylene, HDPE, ethylene, petrochemistry, BASF, Borealis, BP Plc, LyondellBasell, Sabic, Total Petrochemicals, Russia, USA.
Category:General News
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