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IEA: Stubbornly High Diesel Prices May Lead To Lower Demand In 2023

Stubbornly high diesel prices fueling inflation as well as slowing economies are expected to lead to a slight decline in global diesel demand in 2023, the International Energy Agency (IEA) said in its monthly report on Tuesday.

Currently, diesel markets are already “exceptionally tight” and will become tighter still when the EU embargo on imports of Russian products by sea enters into force in early 2023, according to the IEA.

Even before Russia’s invasion of Ukraine in February this year, diesel markets were already in deficit because 3.5 million barrels per day (bpd) of refinery capacity globally was closed down since the start of the pandemic, resulting in a net decline of 1 million bpd, the agency said.

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The post-pandemic economic recovery boosted demand for diesel in 2021. This, combined with distillate inventories at multi-decade lows and lower refining capacity, has pushed diesel prices and the differentials to crude oil prices to record levels. Diesel prices are now 70% higher than last year, and the diesel cracks have surged by 425% from a year ago, the IEA noted. 

Global diesel demand growth is set to significantly ease this year from last year and to be in decline in 2023.

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Last year, global diesel/gasoil demand growth stood at 1.5 million bpd. This year’s growth is expected at just 400,000 bpd, while next year, diesel demand will post a small decline “under the weight of persistently high prices, a slowing economy and despite increased gas-to-oil switching,” the IEA said. 

As the EU embargo on imports of Russian diesel enters into force next February, “The competition for non-Russian diesel barrels will be fierce, with EU countries having to bid cargoes from the US, Middle East and India away from their traditional buyers,” the agency said.   

“Increased refinery capacity will eventually help ease diesel tensions. However, until then, if prices go too high, further demand destruction may be inevitable for the market imbalances to clear,” the IEA concluded.

By Charles Kennedy for Oilprice.com

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