Europe has a diesel problem; refiners are feeling the heat

A worker (C) walks at the plant of Repsol YPF's refinery in Cartagena, southeastern Spain

Europe, one of the world’s biggest diesel consumers, faces a major glut which combined with weak demand is weighing heavily on the ability of the region’s refineries to keep running.

Having hit record lows at the height of the COVID-19 pandemic in April and May, European diesel margins are trending lower again after posting a modest recovery in July, data from benchmark provider S&P Global Platts shows.

“Gasoil [and diesel] is 40%-50% of refining output so it has to be profitable otherwise refineries just burn cash and must shut down,” Hayal Ahmadzada, chief trading officer at Azerbaijain’s SOCAR Trading told Reuters.

He said the paper market was showing some traders expect diesel cracks to fall close to zero or even into negative, which would be unprecedented.

“There are too many refineries for current demand,” he said, adding some won’t be able to operate at those levels for much longer.

While the easing of lockdowns in recent months across Europe has boosted diesel demand, some countries are seeing the recovery stall.

According to leading Spanish fuel distributor CLH, August diesel deliveries to the domestic market were around 9% lower than July levels at 2 million cubic metres.

Experimental data from Britain’s Department for Business, Energy & Industrial Strategy shows that in the past four weeks a recovery which started in mid-April in road fuel demand has stalled.

The diesel market is also afflicted with high stocks.

According to oil analytics firm Vortexa, Europe now accounts for the biggest share of global middle distillates floating storage globally.

Was it worth reading? Let us know.