BAKU, Azerbaijan, May 17. Recent developments in the global diesel market have prompted a reorientation of supply routes, easing concerns surrounding the European Union's ban on Russian refined fuel imports, Trend reports with reference to Fitch Solutions.
Despite the ban coming into effect in February 2023, European diesel prices have continued to decrease. Prior to the war in Ukraine, Russia accounted for approximately 40% of the EU's total diesel imports.
Market dynamics have shifted as European nations increased their imports of Russian diesel in the months leading up to the ban, helping replenish storage levels across the region. Consequently, concerns about the ban's impact on pricing have diminished. Northwest Europe has successfully replaced Russian imports by sourcing supplies from Asia and the Middle East. Notably, data reveals a substantial increase in diesel imports from Saudi Arabia, India, and China in February 2023.
However, there are concerns that China's significant increase in fuel export quotas may further saturate an already weakened demand market. At the beginning of the year, China raised its refined fuel export quotas for 2023 to 19 million tons, a 46% rise compared to the previous year's 13 million-ton quota. This decision was primarily driven by sluggish domestic demand and the aim to boost refining output, which is estimated to have declined by 1.5% year-on-year in 2022.
Consequently, Chinese diesel exports have surged in early 2023, averaging approximately 489,000 barrels per day (b/d) in Q1, marking a more than five-fold increase compared to the 89,000 b/d averaged in Q1 2022. This surge in Chinese diesel exports, coupled with weakening global demand, poses a risk of further oversupply in the global diesel market.
However, it is worth noting that there is a downside risk to China's diesel exports for the rest of 2023. Recent upward revisions in China's near-term economic growth prospects, including consumption growth and signs of recovery in the real estate industry, could lead to increased domestic demand. Analysts have revised China's forecasted real GDP growth for 2023 to 5.2% from the previous estimate of 5.0%. Tentative indications of a recovery in domestic diesel demand have already emerged, with Chinese diesel exports in March 2023 falling by 33% compared to the previous month.