(Bloomberg) — Demand for diesel in Europe is set to fall more sharply this year than it did during the coronavirus pandemic due to weak manufacturing and a change in the structure of the car fleet.
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Annual consumption in OECD Europe – most of which is road diesel used in cars and trucks – is expected to be more than 3% lower than in the first year of the pandemic, according to the Paris-based International Energy Agency, a surprising drop given that widespread lockdowns and travel restrictions stifled economic activity and fuel demand in 2020.
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Europe's demand for diesel accounts for more than 1 in every 20 barrels of global consumption, making it a key piece of the overall oil market jigsaw puzzle. The region doesn't produce enough of the fuel, making it a key destination for surpluses for many of the world's refineries.
Gasoline not only powers cars and trucks, but is also used for heating, manufacturing and shipping, meaning consumption is linked to both temperature and economic activity.
“A mild winter led to weak demand for heating fuels in the Nordic markets in January and February,” said Ian Mowat, principal oil and chemicals analyst at consultancy Wood Mackenzie Inc. “This is exacerbated by weaker manufacturing performance in Europe, which remains weaker than all other regions.”
A sharp drop in consumption of Europe's most popular petroleum product amid a tough demand environment in the crude oil market could be another reason for OPEC+ to be cautious in implementing a tentative plan to restore crude production.
Driver Shift
Structural changes in the types of cars Europeans want to drive are also hampering demand.
Diesel cars accounted for just 13 percent of new car registrations in the EU in the first six months of the year, down from 37 percent in 2018, according to figures from the European Automobile Manufacturers' Association (EAM).
The switch has helped curb demand for road fuel in several European countries for several months.
Various diesel
It's worth noting that the IEA figures show that demand for diesel fuel has fallen notably, but is not as low as it was in 2020. But total annual consumption is expected to fall below pandemic levels due to a sharp decline in what the agency calls other light fuels, such as oil used in heating, shipping and agriculture.
The story continues
Still, it's not all bad news: The profits that oil refiners make from diesel production have fallen in recent weeks, but the premium over crude remains higher than the seasonal average over the past decade, except for 2022 and 2023, which saw exceptional prices after Russia's invasion of Ukraine.
A recovery in European industrial production is also expected next year, according to WoodMac's Mowat, which, along with new rules requiring marine fuel with lower sulfur content in the Mediterranean, should support overall gasoline demand, he said.
–With assistance from Rachel Graham and Bill Lehane.
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