Asian diesel margins heat up amid supply surplus, sea concerns

Asia’s diesel production margins are under increasing pressure due to an oversupply as major exporters ramp up shipments and fewer cargoes are directed towards Europe due to Red Sea shipping concerns, Reuters reported on Monday.

The profit margin, or crack spread, for refining a barrel of gasoil into diesel and jet kerosene at a typical Singapore refinery was $20.33 on March 15, down from the previous close of $20.87 and just above the eight-month low of $19.89.

This represents a 28 per cent decrease from the 2024 peak of $28.26 a barrel, reached on February 13. Several indicators are signaling potential trouble for the diesel market in Asia.

Last week, middle distillate stockpiles in Singapore, a key regional hub for refined fuels, surged 8 per cent to their highest level since September 2021. This coincided with a 98 per cent drop in net diesel exports and a 26 per cent  drop in jet fuel exports.

Despite the weakening crack spread, Asian refineries continue to have some incentive to export cargo, as a profit margin of around $20 a barrel remains above the 2023 lows of about $11.

However, the likelihood of the crack spread falling to match last year’s lows is increasing, particularly as more diesel enters Asia and less is directed towards destinations west of the Suez Canal.

Shipping concerns in the Red Sea, due to attacks by Yemen’s Iran-aligned Houthi group, have prompted some shippers to reroute cargo around the Cape of Good Hope, a longer and more expensive journey.

This has reduced the volume of refined fuels heading to Europe from Asia, a situation exacerbated by declining European demand as the northern winter concludes.