Demand for the fuel used to power trucks, generators and machines remained strong even as COVID-19 cases surge across the world as measures taken by governments to curb the spread were less severe than in 2020, traders and analysts said.
Strong jet fuel prices have also reduced the availability of the middle distillate for blending into the diesel pool, they added.
Asian refining margins for the benchmark gasoil grade with 10 ppm sulphur content have hit more than two-year highs, notching a profit of nearly 24% this month from December.
"Asian diesel demand has been robust, particularly from Australia, India and Southeast Asia, but supply has not been able to keep pace," Serena Huang, analyst at Vortexa said.
Analysts expect less exports from within the East of Suez region as key suppliers are facing strong domestic consumption, leaving them with almost no cargoes to ship.
"A 140,000 barrels per day uptick in Indian demand month-on-month, now almost equalling 2019 levels, is keeping a lid on the
overall volumes available for export," consultancy JBC Energy said in a note.
Singapore's middle distillate inventories edged up in January but remain near December levels which were hovering at their lowest since May 2018, Refinitiv data showed.
Lower shipments from Asia and the United States have tightened supplies in Europe, pushing European benchmark diesel cracks well above the five-year average.
European gasoil margins are trading at their highest in five years, also partly because of very strong jet fuel prices which have meant refiners are blending less into the diesel pool, traders said.
Gasoil stocks held in independent storage in the Amsterdam-Rotterdam-Antwerp (ARA) refining and storage area fell 8% to 1,686 million tonnes in the week to Thursday, data from Dutch consultancy Insights Global showed, well below their 5-year average for this time of the year of around 2.475 million tonnes.
Adding to the tightness, Shell's 400,000-bpd Pernis refinery in the Netherlands, Europe’s largest, will go into maintenance
until June.
However, traders expect the arbitrage from Asia to Europe to open very soon which could lead to a large flow of diesel.
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