In recent times, the landscape of diesel pricing in China has been a focal point of discussion among industry analysts and market participantsAs of early February, the wholesale price of diesel has reached approximately 7078 yuan per ton, a significant decrease of 475 yuan compared to the peaks recorded on January 13. Similar trends can be observed in the Brent crude oil market, where prices have also dipped by about 350 yuan per ton during the same timeframeThe ongoing shifts in diesel crack spreads signal a continued decline in profitability for refinersThe fluctuations in diesel prices throughout January were predominantly driven by market speculation, leading to erratic surges and plummets in pricingAs the dust settles into February, prices are leveling off, positioning themselves at relatively low levels, with minimal room for further decline but a noticeable resistance to upward movements.

As the market seeks to analyze diesel consumption patterns, forecasts suggest a month-on-month increase of approximately 2.9% in daily diesel consumption for February, amounting to an average of 514,000 tons per dayThis represents a substantial year-on-year rise of 15.6%. Following the Lunar New Year, outdoor projects in construction, mining, and infrastructure are expected to gradually ramp up, although many northern regions remain relatively stagnantThe logistics sector appears to be the first to recover, showing a significant reboundThe extended period affected by the New Year celebrations in 2024 could place monthly consumption levels at a low point, subsequently leading to a more pronounced year-on-year increase for the following year.

On the production front, projections for February indicate a 3.3% month-on-month rise in daily diesel output, estimating an average production level of about 568,000 tons per dayHowever, this marks a decline of 5.0% when juxtaposed against figures from the previous yearThis shift stems from a variety of factors influencing the structure of diesel production within the country

Advertisements

Mainstream enterprises have notably ramped up their production rates, leveraging stable resource channels, advanced production technologies, and robust management systemsThe alignment with market demands has compelled these companies to streamline their production processes and ensure more efficient resource allocation, contributing to the overall growth in diesel output.

Conversely, independent refineries are experiencing more complex dynamicsTheir operational rates have seen only a limited rebound, influenced by factors such as the disruptions in crude oil procurement, adjustments in fuel oil subsidies causing losses, and premature maintenance schedulesThe uncertainty in global oil prices, coupled with erratic supply channels, severely hampers independent refineries' access to raw materials, directly compromising their production consistencyThe changes in fuel oil subsidies have altered their cost structures, leading to losses during diesel production and urging these facilities to adopt more conservative production strategiesThe combination of these challenges means that overall diesel production levels in China are not meeting the initially optimistic expectations.

Reflecting on past trends, February 2024 projected optimistic figures for diesel output, driven by a stable domestic economic climate where industrial and transport sectors were ramping up their diesel demandsA conducive policy environment further fortified production growthHowever, by 2025, the forecast appears more conservative, with expectations of declining output owing to decreasing consumption trendsThe ongoing advancements in renewable energy technologies and increasingly stringent environmental policies have begun to displace traditional diesel demandFor instance, the rise of electric vehicles lessens the agricultural and transportation sector's reliance on diesel, pushing manufacturers to adopt cautious production strategies in anticipation of market risks.

Overall, the changes projected in February concerning diesel production levels reflect a confluence of factors

Advertisements

The road ahead for diesel production amidst the evolving energy market remains uncertainTo navigate the upcoming challenges, diesel producers will need to persistently refine their production structures, enhancing efficiency and driving technological innovation to keep pace with shifting consumer demandsAdditionally, a proactive governmental role in regulating and guiding the energy market, along with formulating coherent policies, will be instrumental in fostering a healthy growth path for the diesel production sector.

On a related note, diesel stock levels are anticipated to witness a considerable rise in February, advancing by 910,000 tons to reach 20.35 million tons, placing inventories within a mid to high-range bracket, despite experiencing a year-on-year drop of 2.1 million tonsProfit margins for diesel exports surpass those of gasoline, yet remain lower than those of kerosene, culminating in an overall balanced supply in the domestic marketAlthough the export strategy appears cautiously optimistic, anticipated export figures hover below 600,000 tons, indicating a prudent approachImport figures are expected to be non-existent, reinforcing the narrative of self-sufficiency within the domestic market.

Consolidating the trends observed in supply, demand, and international trade data suggests a concentrated accumulation of diesel stock in February among primary suppliers and trading companies, even as year-on-year figures remain appreciably lowAnticipated increases in essential demand and significant refinery maintenance in March are expected to mitigate any market anxiety induced by rising inventoriesAlthough February may continue to exhibit subdued demand dynamics, the recovery of independent refinery supplies remains palpably restrainedConfidence in future demand recoveries is relatively high, and traders may opt to capitalize on lower price points by increasing stockpiling effortsAs the end of the month approaches, fundamental demand is expected to lend additional support to diesel pricing, paving the way for a recovery as market sentiment rebounds

Advertisements

Advertisements

Advertisements