Deliveries of diesel fuel from Asia will grow in 23y due to the loading of refineries, exports from China

SINGAPORE, Jan 19 (Reuters) – Asian diesel supplies will rise in 2023 after a year on tight stocks as refineries ramp up production in a bid to extract more profits and China boosts exports with new quotas, industry sources and analysts say .

With increased supplies, Asian refineries will be able to fill part of the demand in Europe after the embargo on imports of Russian oil products comes into force on February 5. Increasing diesel production in the region is also likely to meet projected growth in demand in India and Southeast Asia.

Asian diesel margins and the premium are expected to decline at the end of the first quarter with supply expected to outstrip demand. Meanwhile, European storage facilities are filled to capacity ahead of sanctions, limiting demand for oil products from Asia for now.

This is indicated by the fact that the January and February volumes of diesel fuel supplied from Asia, sold through tenders, were traded at a discount of $0.5 to $4 per barrel to Singaporean quotes.

In 2023, diesel supplies from Asia could increase by almost 3% compared to the previous year, while demand growth will lag about 1% in 2023, according to consultancy Wood Mackenzie.

Asian refinery throughput in the first quarter of this year could rise by 2.8% compared to the fourth quarter of 2022 to 31.1 million barrels per day, according to Wood Mackenzie. In general, this figure may increase by 4.7% over the year compared to the level of 2022.

“Growth will be driven primarily by India, Japan and Korea, with large refineries boosting refining volumes after refurbishments in the fourth quarter of 2022 on the back of strong margins,” said Wood Mackenzie’s Daphne Ho.

Performance indicators of Japanese refineries showed growth last week, follows from official data. In turn, Taiwanese oil refiner Formosa Petrochemical Corp also increased the average volume of oil refining for January-February to 480,000 bpd from 420,000 bpd in the fourth quarter of 2022, company spokesman K. Yu. Lin said.

“Each refinery will maximize refining through mid-2023 as the main oil products in the chain are now profitable,” Lin said.

Buyers may also look to Asian suppliers as two refineries in Saudi Arabia will be shut down for preventive maintenance in January and February, he added.

THE CHINESE FACTOR

Diesel export volumes from China will remain at a high level, as the country’s authorities have allocated a new package of quotas for the export of petroleum products in 2023, and refineries have an opportunity to earn extra money against the backdrop of high export margins.

Exports are expected to decline to 2 million tons, or 497,000 bpd, in January, according to average forecasts by Wood Mackenzie and Chinese consulting firms Longzhong and JLC. This is below the December volumes of 2.79 million tons, but above the monthly average of 1.63 million tons between September and November 2022.

The increase in exports from China partially offsets the reduction in supplies from Russia, whose exports of oil products are expected to be significantly affected by Western sanctions.

According to Vortexa analyst Serena Juan, after the EU embargo comes into force in February, up to 670,000 barrels per day of Russian diesel fuel delivered to Europe every month will have to find alternative markets in Latin America, Africa and the Middle East. Thus, deliveries from the Russian Federation may displace oil products regularly supplied to these regions from Asia.

At the same time, traders are considering the possibility of sending diesel fuel from Asia to Europe to replenish volumes after a reduction in cargo traffic from the Russian Federation. So, for example, Latvia in early January imported the first batch of diesel fuel from China.

The volume of oil products imported into Europe from Northeast and Southeast Asia more than quadrupled in the second half of 2022 to about 103,000 bpd compared to the first half of the year, data from Refinitiv showed.

“A number of potential gaps (in supply) could be filled by Japan and South Korea, which are pushing hard to grab a larger share of the European market (despite the smaller distance of Middle Eastern suppliers),” said Rystad Energy’s Janiv Shah.

Strong demand growth in India, Indonesia and Vietnam could also spur refiners to increase production, analysts say.

Diesel demand in India – Asia’s second-largest fuel consumer after China – is expected to rise 5-6% this year, while consumption in Indonesia and Vietnam could rise 6-7%, analyst at Wood Mackenzie said. Lee Quan Hui.

The original message in English is available at the code: (Trixie Yap)

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