Global Diesel Market Outlook

By Ahmad Ghaddar, Shariq Khan, and Trixie Yap

LONDON/NEW YORK/SINGAPORE (Reuters) – The global diesel market is expected to receive price support in 2025 due to a closure of about 1% of refining capacity. This could counterbalance the current market weaknesses and the ongoing structural downward trend as the world transitions to cleaner fuels.

Current Market Situation

As the year ends, the market is on uncertain footing despite peak seasonal demand. Margins in major energy hubs like Singapore, northwest Europe, and the U.S. Gulf have decreased from November’s strong levels, particularly as several refineries have resumed operations after maintenance shutdowns.

Notably, approximately 1 million barrels per day of refining capacity in Europe and the U.S. is projected to permanently close next year, driven by weak profits. Meanwhile, global demand is set to see a slight uptick.

Energy Aspects’ analyst Natalia Losada says, “For 2025, we are constructive on European diesel prices due to the capacity closures, still low forward margins that will keep utilization levels relatively low, and a slight rebound in demand.” However, seasonal demand at present is providing limited support.

Demand Forecasts

Consultancy FGE Energy anticipates a year-on-year decline of 230,000 bpd in European diesel and gasoil demand from January to December, even with predictions of one of the coldest northern hemisphere winters in a decade due to low road fuel use.

The return of refineries such as Saudi Arabia's Yasref and Kuwait's Al Zour will enhance Middle Eastern supplies.

Price Trends

Asian diesel cracks surged to three-month highs throughout November but have dipped lower in December, averaging below $15 a barrel. U.S. ultra-low sulfur diesel futures reached a $26 per barrel premium over West Texas Intermediate crude on November 26, the highest since July, before falling to almost two-month lows of under $22 by December 5. European margins followed suit, peaking at $18.70 per barrel on November 26, then softening by over $2 by December 11.

Future Prospects

Distillate fuels like diesel and gasoil serve various purposes, including motor fuel, heating, and industrial power. However, a global transition to cleaner fuels, particularly in China, has drastically reduced demand.

Despite this, the International Energy Agency forecasts an increase in gasoil and diesel demand by 95,000 bpd next year, rebounding from a contraction of 180,000 bpd this year. Refineries slated for closure include Scotland's Grangemouth, LyondellBasell’s Houston refinery, and Phillips 66’s Los Angeles refinery. Gunvor Group plans to halt fuel production at its 75,000 bpd Rotterdam refinery.

JP Morgan anticipates European diesel margins to remain between $17-$19 a barrel next year, potentially rising to $21 in 2026, while U.S. margins are estimated to be robust at average levels of $25 in 2025 and $28 in 2026. New shipping regulations coming into effect in May, positioning the Mediterranean as an Emission Control Area (ECA), are likely to increase gasoil demand by around 50,000 bpd as industries shift from dirtier fuels.

Although Asian refiners, who typically export to Europe, may benefit from reduced European capacity, it is expected that lighter refinery maintenance shutdowns and new expansions will keep Asian prices under pressure.

Fresh additions to refining capacity in China, India, and Indonesia are projected to exceed 800,000 bpd next year, according to Reuters calculations. FGE forecasts Asia's diesel cracks to average below $14 a barrel in the first half of next year, slightly lower or stable compared to current levels.