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Global diesel shortages proving to be saviour for oil marketing companies

ICICIdirect Research 24 Mar 2022 DISCLAIMER

What’s Buzzing:

Diesel shortages in the US, Europe, Singapore (compounded by western sanctions on Russia – which is a major supplier of diesel) has lead to MoM doubling of diesel product crack (i.e. difference between crude oil price and diesel price).


Diesel inventories in Europe and the US are down 8% (35 million barrels) and 21% (30 million barrels), respectively, in mid-March (Reuters) compared to five-year seasonal average of pre-Covid era. While consumption recovered across the world with easing of Covid-19 restrictions, production lagged behind, resulting in a depletion in diesel stocks.

Our Perspective: 

Singapore gasoil cracks were trading in the range of ~US$17-18/bbl in February. They have strengthened to ~US$35/bbl in March. Russia is one of the key suppliers of diesel (as per data from Eurostat, Russia comprised ~20% of Europe diesel imports in CY19) and economic sanctions on it by western countries have contributed to supply tightness. Demand from China amid renewed Covid restrictions will be a key monitorable. From an Indian perspective, diesel accounts for ~40% of petroleum products consumption and consumption in FY22-TD, lagging behind FY20. Diesel cracks are important as they constitute more than 40% of refining yield. If sustained at higher level, refineries will benefit. On the refining front, oil marketing companies (OMCs) will also benefit from inventory gains. Refining will be a saviour for OMCs as it will partially soften the impact of negative marketing margins (in March) for OMCs.

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