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For the First Time Since 2013, Analysts Expect a Rise in Asia's Diesel Profit

For the First Time Since 2013, Analysts Expect a Rise in Asia's Diesel Profit
As demand for the fuel improves in the infrastructure, construction, mining and oil and gas exploration sectors, Asian refiners' profit margins from producing diesel in 2017 may rise for the first time in four years.
Analysts and traders said that higher margins would be spurred by a recovery in crude oil prices that will stabilize the finances in some producer countries along with a return to normal winter conditions after last year's warmer-than-average temperatures.
Suresh Sivanandam, senior manager, refining research Asia Pacific, at Wood Mackenzie in Singapore noted that higher than the $10.70 a barrel recorded in 2016,, diesel demand growth will likely drive refiners' profit for producing a barrel of diesel from Dubai crude to an average of $11.40 a barrel in 2017.
Since 2013, this would be the first annual increase. According to data on Thomson Reuters Eikon, the average margin fell to a seven-year low of $10.60 a barrel in 2016. China was a net importer of the fuel in 2008 and the 2017 forecast would still be below the peak of $26 in 2008.
As miners increase their consumption to operate machinery, coal prices that surged in 2016 should continue to provide support for diesel demand in 2017.
Because of rising prices in 2016, coal miners in Indonesia and Australia boosted output. Woodmac's Sivanandam said that Indonesian growth should continue in 2017.
"The recovery in coal prices is expected to give some boost to diesel demand, after years of muted growth," he said.
Sri Paravaikkarasu, head of East of Suez Oil at energy consultants FGE said that diesel demand in Asia is also expected to be supported by continuing growth in other emerging economies.
In addition to being treated as a heating fuel in Europe, diesel is used to fuel heavy vehicles in industry and construction as well as mining equipment.
Analysts from consultants Energy Aspects said in a note to clients that infrastructure investments diesel demand in Myanmar, Bangladesh and Pakistan would be boosted by China's "Belt and Road Initiative". Energy Aspects said that the initiative "will be a key driver of infrastructure investment in the coming years."
Energy Aspects said that boosted by a pick-up in drilling activity in North America and an uptick in mining activity in China, following a decline of 50,000 bpd in 2016, globally, diesel demand is expected to rise by 500,000 barrels per day (bpd) in 2017.
The consultants said diesel stocks would be significantly drawn down by the Spring refinery maintenance in Asia which is expected to be the heaviest since 2014. Compared to the same time in 2016, it is expected that 1 million bpd more capacity to be shut in March and April this year.
Energy Aspects said that still diesel could come under pressure again in the second half of the year, with Asian refinery capacity expansions expected to exceed 1 million bpd in 2017, mainly in China, Vietnam and India.
"While overall Asian demand should improve, growing refinery and condensate splitter runs in both Asia and the Middle East will keep the market well-supplied," said FGE's Paravaikkarasu.

Christopher J. Mitchell

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