Rising gasoline and diesel demand overwhelmed by refinery expansions

According to ESAI Energy’s latest Global fuels outlook, global demand for transport fuels will rise by more than 1mn b/d in 2019, after increasing by just 800,000 b/d in 2018. This acceleration will be driven by a recovery in gasoline and diesel demand growth.

Gasoline demand growth will more than double next year, suggests the report. The turnaround in the gasoline market will be particularly pronounced in Brazil and China. In Brazil, where gasoline demand has fallen by roughly 100,000 b/d this year as a result of an increase in hydrous ethanol (E100) due to favourable economics, demand is expected to return to growth in 2019.

Meanwhile global diesel demand growth will accelerate by 40% in 2019, driven largely by China and Saudi Arabia. Chinese diesel demand, which is set to contract by 80,000 b/d this year due to the implementation of stricter environmental policies, will recover next year. Similarly, in Saudi Arabia, where demand has been declining since 2016 due to a combination of fiscal austerity and the phase-out of subsidies for industrial inputs, consumption is expected to rise slightly next year.

Despite accelerating gasoline demand, increases in refinery output, particularly East of Suez, will far outstrip demand and exert bearish pressure on gasoline spreads to crude in 2019. Diesel spreads will face similar downward pressure in 1H2019, as refining capacity increases in the Middle East. However, diesel spreads will strengthen during 2H2019, in the lead up to the implementation of the International Maritime Organisation’s (IMO) 0.5% sulphur cap on marine fuels.