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Global fuel prices jump as Asia, U.S. to rev up demand in Q2

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Global oil and

fuel prices are picking up as demand returns to pre-pandemic

levels amid easing coronavirus lockdowns in key countries like

China and India and signs of increasing road travel in several

countries.

Gasoline prices in Asia, Europe and the United States all

scaled 1-year highs this week, while benchmark global crude oil

Brent futures topped $60 per barrel for the first time

in a year.

The firmer prices are welcome news after the oil sector

suffered its worst ever demand contraction in 2020, encouraging

traders to drain brimming storage tanks to ease a supply glut.

There are, however, questions over how quickly refiners with

idled capacity can respond to increased demand. Analysts say the

recovery pace will vary by region and fuel type, and that jet

fuel demand will remain the weakest performer until more

international air travel resumes.

In its outlook on Thursday, the Organization of the

Petroleum Exporting Countries (OPEC) noted that current oil

demand levels were still “lagging” prior forecasts – an

observation that knocked prices – but are expected to pick up in

the second half of 2021.

The International Energy Agency (IEA), in a separate

forecast on Thursday, said it expected demand to rise strongly

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later this year.

ASIA FIRST

Asia Pacific gasoline demand is expected to recover to 2019

levels by the end of the first quarter, following the region’s

return to pre-COVID gasoil consumption levels in late 2020, said

Max van der Velden, principal analyst at Wood Mackenzie.

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“This is primarily driven by China which has managed the

pandemic very well,” van der Velden said. “We forecast the

impact of renewed Chinese lockdown measures that restrict

mobility to be short-lived.”

An accelerating shift from public transport to personal cars

is also bullish for China’s gasoline demand, he said.

Recovering industrial activity in India – the second largest

net oil importer behind China – has also tightened supplies of

diesel, or gasoil, across Asia, which is usually a net exporter

of the fuel.

With Asian refiners scheduled to curb output for annual

facility maintenance in the second quarter, Asia’s gasoil

surplus could narrow to around 300,000 barrels per day (bpd) in

April-May from 500,000 bpd in the first quarter, FGE analyst

Sandy Kwa said.

Asia’s gasoline demand is expected to increase by 400,000

bpd in February from January, Kwa added, noting that the

expansion over the same period in 2019 was closer to 600,000

bpd.

Higher diesel demand in Europe may also soak up excess Asian

supplies, Kwa added.

U.S. SUMMER DRIVING SEASON

U.S. gasoline prices for May, when the peak driving

season typically gets underway, have climbed 16% so far this

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year, putting them above corresponding levels in 2020 and 2019

on improving demand and constrained supply.

U.S. gasoline output has partially recovered from the lows

of the pandemic, but was still down 11% on the year in January,

while stocks were roughly 3.2% lower, according to American

Petroleum Institute data.

That lower level of output and stocks means refiners and

traders may be caught “flatfooted” if demand surges, said John

Kilduff, partner at Again Capital in New York.

Wood Mackenzie analyst Paula Jara said U.S. gasoline demand

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will reach 8.83 million bpd this year. That’s about 800,000 bpd

above 2020 levels but still around 500,000 bpd below 2019

levels.

Truck traffic held up better than passenger car travel

thanks to increased deliveries of food, goods and protective

equipment. As a result, demand for diesel fell by only 340,000

bpd versus 2019, Jara said.

For 2021, total U.S. diesel use is expected to be 3.5% above

2020’s levels, but around 3% below 2019’s total, she added.

EUROPE

In Europe, renewed lockdowns and a low rate of vaccinations

might quash fuel demand in the coming weeks, but better weather

and eased travel restrictions in the spring will likely boost

fuel demand by June, analysts said.

European refining margins are still lower than a year ago,

but rising prices and narrowing price spreads between gasoil

futures delivery months indicates a tightening market, analysts

said.

The six-month diesel contango reached $1 a

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tonne on February 5, its narrowest in almost a year, Refinitiv

data showed.

European gasoline and diesel demand to rise by some 900,000

bpd to 8.3 million bpd by June, according to Rystad Energy.

“We are forecasting economic growth and a recovery in

mobility associated with lockdowns easing from a combination of

better weather and vaccination programs (through June), which

increases global gasoline demand by over 2 million b/d over that

period,” said Alan Gelder at Wood Mackenzie.

Gasoline cracks forecast

Region Q1 Q2

FGE Asia $4 range $5-$6

Wood Asia to rise to more than

Mackenzie $6

Wood Europe double to $6 by

Mackenzie end-June from

January

Asia’s 10-ppm gasoil cracks

forecast

Region Q1 Q2

FGE Asia $5 range $6-$7

Wood Asia increasing to

Mackenzie $5.50-$6

Wood Europe double to $8 by

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Mackenzie end-June from

January

(Reporting by Koustav Samanta and Florence Tan in Singapore,

Ahmad Ghaddar and Bozorgmehr Sharafedin in London and Stephanie

Kelly in New York; Editing by Gavin Maguire and Jane Wardell)

In-depth reporting on the innovation economy from The Logic, brought to you in partnership with the Financial Post.

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