By Ahmad Ghaddar, Shariq Khan and Trixie Yap
LONDON/NEW YORK/SINGAPORE (Reuters) – The global diesel market will likely find price support in 2025 from the closure of about 1% of refining capacity, traders and analysts said, offsetting current weakness and structural downward pressure as the world shifts to cleaner fuels.
The market ends 2024 on shaky ground, despite peak seasonal demand, as margins in the world’s key energy hubs in Singapore, northwest Europe and the U.S. Gulf have come off November’s firm levels as some refineries returned from maintenance shutdowns.
About 1 million barrels per day of refining capacity in Europe and the United States is expected to permanently shut down next year in response to weak profits, Reuters calculations show, while world demand is expected to rise slightly.
“For 2025, we are constructive on European diesel prices due to the capacity closures, still low forward margins that will keep utilisation levels relatively low, and a slight rebound in demand,” Energy Aspects analyst Natalia Losada said.
For now, seasonal demand is offering limited support.
Consultancy FGE Energy expects European diesel and gasoil demand to contract by 230,000 bpd year-on-year over January and December even amid forecasts that the northern hemisphere winter will be the coldest in 10 years, on low road fuel use.
The return from maintenance this month of refineries like Saudi Arabia’s Yasref and Kuwait’s Al Zour will boost supplies from the Middle East, they added.
Asian diesel cracks recovered to three-month highs for most of November, but have crept lower in December to average below $15 a barrel.
U.S. ultra-low sulphur diesel futures hit a $26 per barrel premium against West Texas Intermediate crude oil futures on Nov. 26, the highest since July, but the crack has since eased to a near two-month low of under $22 by Dec. 5. Margins in Europe followed a similar trajectory, hitting a 16-week high of $18.70 per barrel on Nov. 26, then softening by more than $2 by Dec. 11.
SUPPORT IN 2025
Distillate fuels like diesel and gasoil have a range of uses including as a motor fuel, for heating and powering factories. But a shift in global car and truck fleets to cleaner or renewable fuels, particularly in China, has slashed demand.
Still, the International Energy Agency expects gasoil and diesel demand to expand next year by 95,000 bpd – up from a 180,000 bpd contraction this year – and traders and analysts say there are other factors that could support the market in 2025. The refinery closures include Scotland’s Grangemouth refinery, LyondellBasell Industries (NYSE:LYB)’ 263,776 bpd Houston refinery and Phillips 66 (NYSE:PSX)’s and 139,000-bpd Los Angeles refinery. Gunvor Group announced on Dec. 10 plans to cease fuel production at its 75,000 bpd refinery in Rotterdam. JP Morgan expects European diesel margins to trade at about $17-$19 a barrel next year, rising to $21 in 2026 as refinery shutdowns outpace demand contraction. It expects U.S. margins to remain strong, averaging $25 in 2025 and $28 in 2026. Also, shipping rules set to come into effect in May, making the Mediterranean region an Emission Control Area (ECA), are expected to bolster gasoil demand by about 50,000 bpd, traders say, as the industry moves away from dirtier fuel oil. While Asian refiners who typically export to Europe will benefit from less European capacity, two traders said lighter refinery maintenance shutdowns and new refinery expansions next year are expected to keep Asian prices under pressure.
Fresh additions to refining capacity in China, India and Indonesia will likely total more than 800,000 bpd next year, Reuters calculations show. FGE forecasts Asia’s diesel cracks to average less than $14 a barrel for the first half next year – slightly lower or stable relative to current levels.
