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Diesel demand dumps, inventories rise


Diesel demand dumps, inventories rise

A rare occurrence for a fuel that powers large swaths of the global economy, global demand for diesel is expected to decline this year.

The Paris-based International Energy Agency (IEA) The International Energy Agency (IEA) has downgraded its global diesel demand forecast for the year, predicting a decline of 258,000 barrels per day. This is the largest annual decline since 2016, outside of the COVID-19 pandemic.

While this may seem small compared to total global consumption, it's a significant development. Diesel fuels a vast array of sectors, from transportation to agriculture, making it a key indicator of economic health.

Vikas Dwivedi, Global Energy Strategist at Macquarie Group, has declared the end of diesel's era as a primary driver of oil demand growth. Although demand is projected to rise next year, it will be outpaced by supply increases, resulting in a substantial inventory buildup.

Chinese diesel demand is facing headwinds from a slowdown in construction and housing activity, as well as the rapid adoption of natural gas-powered trucks. In India, diesel sales have grown at a sluggish 1.8% year-to-date, the slowest pace since the pandemic-induced lockdowns of 2020.

US diesel inventories have reached their highest seasonal levels in two years, indicating a significant surplus. Futures contracts have entered a contango state, a clear sign of oversupply. In Northwest Europe, diesel inventories are expected to remain above seasonal norms. Moreover, investor sentiment has shifted from bullish to bearish, with asset managers taking net short positions on diesel futures.

It's worth noting that there are various types of diesel, each used in a different sector. For example, marine gasoil is used to power ships, while land vehicles typically consume ultra-low sulfur diesel, and heating oil is used for heating purposes.

It's important to note that different types of diesel fuel various sectors. Marine gasoil powers ships, ultra-low sulfur diesel fuels vehicles, and heating oil warms homes. Global diesel demand in 2024 has been negatively impacted by weak industrial activity in key regions, notably China, and milder-than-usual winter weather in Europe and Japan.