MOSCOW (MRC) -- A record volume of diesel is set to reach Europe from the East in May after lockdown measures due to coronavirus left refiners in Asia and the Middle East with huge excess volumes of fuel, reported Reuters.
Refineries around the world have cut output in recent months in response to the unprecedented drop in demand due to movement restrictions imposed by governments to limit the spread of the coronavirus epidemic.
But that may prove insufficient after countries including India extended lockdown measures and others, including many European countries, recover activity at a slow pace, traders and analysts said.
The weak demand led to a rise in global diesel stocks and has put heavy pressure on profit margins for converting crude oil into diesel which last week hit an 11-year low below USD5 a barrel, according to Reuters calculations.
"Cutting refinery runs further means shutting units. It is much harder for refiners to make that decision but it will have to happen," a source at a European refiner said.
Over 3 million tonnes of diesel are set to arrive in Europe in May, up from a previous record of 2.8 million tonnes in June last year, according to Refinitiv data.
The sharp rise in fuel exports from Asia comes after China’s refineries cranked up operations in April following the easing of lockdown measures were eased.
Oil demand in the world’s top energy consumer is however recovering slowly, leading to higher exports from China.
The collapse in fuel demand initially hit jet fuel and gasoline the hardest, while diesel refining margins, or cracks, held well due to ongoing industrial activity.
With diesel accounting for around 50% of global refinery output, plants must now prepare to shut down crude distillation units, Vienna-based consultancy JBC Energy said in a note.
"Diesel cracks only last week started to plumb new record lows - this difference in timing in our view doesn’t signify a sudden drop off in diesel demand, but is rather the primary signal to reduce crude distillation."
As MRC informed previously, 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.
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 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 557,060 tonnes in the first three month of 2020, up by 7% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments rose because of the increased capacity utilisation at ZapSibNeftekhim. Demand for LDPE subsided. At the same time, PP shipments to the Russian market was 267,630 tonnes in January-March 2020, down 20% year on year. Homopolymer PP and PP block copolymers accounted for the main decrease in imports.
MRC