/ world today news/ If the oil market gives an idea of the state of the economy, it is only through the prism of two oil products: diesel fuel and naphtha. And in Europe the news is grim.
The former powers trucks, trains, ships and industries including agriculture and construction. The latter is used in the petrochemical sector to produce everything from medical equipment to chewing gum. Annual consumption of both fuels in Europe will fall this year, with oil hitting its lowest level since 1975 (1975! Those are the days of dear Leonid Ilyich.)
“Weak economic growth in Europe has hit the manufacturing sector hard,” said Alan Gelder, vice president of oil refining consultancy Wood Mackenzie (What’s your weak growth? It’s a collapse, a recession, my notes)
Demand on the continent remains weak, although traders are closely monitoring potential supply disruptions caused by the war in the Middle East. The expected decline in consumption of both fuels this year will be more than half a million barrels per day compared to pre-pandemic levels, not far from Belgium’s total oil consumption.
As Europe is a major importer of diesel from the Middle East, India and the US and a regular exporter of naphtha to East Asia and Latin America, any significant drop in its use is likely to have knock-on effects on economies and oil markets around the world.
Part of the decline in demand this year is due to long-term structural trends. Buyers in the European Union have long favored petrol variants over diesel, and sales of electric cars have also hit consumption.
But the economic crisis in Europe is also an important factor. Purchasing managers’ index data showed continued contraction in construction and manufacturing in the eurozone, while inflation remained above target. Germany’s economy, the largest in the European Union, shrank in the last quarter and is on the brink of recession.
The figures for oil are impressive, with consumption this year expected to fall by more than a quarter from 2021 to 844,000 bpd, the lowest level in 48 years, according to Ciaran Healy, oil market analyst at the International Monetary Fund. energy. Although naphtha is also used in blending to make gasoline, the regulator’s consumption measurements do not take this consumption into account – instead, most of it is used as a petrochemical feedstock.
In the continent’s five largest economies – Germany, France, Great Britain, Italy and Spain – the latest data shows a drop in demand for diesel.
Diesel sales in France fell 13.4% in September compared to a year earlier. In Germany, total oil demand is expected to fall by about 90,000 barrels per day this year, more than any other country in the world except Pakistan.
The global picture is more mixed. In China, demand is growing despite headwinds in the real estate sector: diesel rose 40% in January-August this year compared to the same period in 2019, and diesel consumption more than doubled in the corresponding period .
China is seeing massive investment in petrochemical capacity. The rise in production has led to an oversupply of many of the industry’s products, such as ethylene, propylene and aromatics, although they have boosted the country’s appeal as a manufacturing hub, said Amber Liu, an analyst.
“China has one of the most efficient supply chains – after the growth of the petrochemical industry – so the prices of Chinese finished products are extremely competitive compared to other countries,” Liu said.
In the US, implied demand for distillates, including diesel and fuel oil, has fallen below seasonal norms over the past few weeks.
Looking ahead, domestic demand for distillates is expected to remain below year-ago levels in the fourth quarter before picking up early next year, according to government forecasts.
Still, the trucking industry is showing signs of a nascent recovery, and rail freight is also growing, analysts say.
Oil is commonly used to make gasoline in the US, while cheaper natural gas, a byproduct of shale oil production, has become the preferred feedstock for chemists.
As for Europe, “the outlook for 2024 remains weak for both products,” Gelder said.
Translation: V. Sergeev
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