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Low volumes and profits declare soft Asia diesel market: Russell

Asia's. exports of diesel plunged to a multiyear low in February, and. while volumes might recuperate in March on rising shipments from. China and India, it's likely costs will come under even more. downward pressure.

An overall of 6.6 million metric lots of diesel were exported. from Asia in February, below January's 8.13 million and the. weakest month-to-month figure for a minimum of two years, according to information. put together by LSEG Oil Research.

Regardless of the drop in diesel supply, the earnings margin on the. essential transportation fuel remained weak, suggesting demand growth. stays lukewarm at finest.

The revenue of making a barrel of gasoil, the foundation. for middle distillate fuels such as diesel and jet kerosene, at. a normal Singapore refinery ended at $22.01 on. Monday, below the previous close of $22.17.

The margin has actually been trending weaker since August last year,. when it peaked at $36.13 a barrel on Aug. 28.

The profit on gasoil is likely to come under further. pressure this month as greater volumes of diesel are expected to. be delivered in Asia, especially from leading exporters China and. India.

China's exports of diesel were 713,290 tons in February,. below January's 986,200, according to LSEG, as refiners kept. more of the fuel for the domestic market to fulfill any increased. demand over the week-long Lunar New Year vacations, when millions. of individuals take a trip to see loved ones.

With key domestic sectors like construction and. making staying under pressure, it's most likely that China's. refiners will seek to lift exports in March and April,. particularly considering that the profit margin on diesel stays attractive. to them, assuming they are able to make the fuel from discounted. crude oils from Russia and Iran.

India's shipments of diesel were 2.01 million loads in. February, down from 2.02 million in January and some 29% listed below. the recent peak of 2.84 million in December.

It's expected that more Indian diesel will head to Asia as. cargoes are diverted from Europe, partly because of lower demand. Because of the, as the Northern Hemisphere winter ends and partly. attacks on shipping in the Red Sea by Yemen's Houthi rebels,. which has actually required vessels to take the longer, and more expensive, path. around the Cape of Great Hope.

This pattern can already be seen in the LSEG information, with. India's diesel exports to the West being evaluated at 665,960. heaps in February and 280,000 in January, a marked drop from. December's 1.28 million and 1.12 million in November.

India's exports to Asia were 700,440 heaps in February and. 716,420 in January, up from 371,320 in December and November's. 393,050.

If India continues to change diesel exports to Asia from. Europe, and China does export more as expected, the profit. margin on diesel is most likely to come under further pressure.

The primary factor that might ease some down pressure is. Asia's refinery upkeep season gets underway in March and. typically lasts through April and May.

GAS TIGHTNESS

Asia's other main refined item, fuel, is showing some. resemblances to diesel, insofar as February export volumes were. weak, with LSEG estimating shipments of 4.51 million heaps, down. from 5.64 million in January and December's 6.33 million.

The drop was mostly because exports from China dropped to a. 16-month low of 679,290 heaps and those from South Korea struck an. 8-month low of 813,350.

Unlike diesel, the lower supply of fuel saw the. revenue margin on making a barrel of the light car fuel from. Brent crude at a Singapore refinery << GL92-SIN-CRK > increase.

The margin, or crack spread, ended at $14.63 a barrel on. Monday, up from the previous close of $14.20, and it has actually remained in. an uptrend because the recent low of $2.11 a barrel on Oct. 18.

The fracture might remain supported in coming weeks as exports. from India, which vies with South Korea as the biggest gasoline. carrier in Asia on a net basis, are expected to remain. constrained amidst strong domestic demand.

The opinions expressed here are those of the author, a writer. .

(source: Reuters)