Global diesel prices are forecast to rise over the coming quarters, in line with the expectation for international oil prices to stage a rebound from current levels in 2019, Trend reports citing Fitch Solutions Macro Research (a unit of Fitch Group).
"With outlook for the fuel generally stable across the two biggest markets, the US and China, the main driver of prices and demand going forward will be the global emerging markets (Ems), for which our growth expectations are still positive, although with growing downside risks," said the report from Fitch Solutions.
The company expects that the implementation of IMO 2020 emissions laws will mark a turning point for the global diesel market, as refiners and consumers alike scramble to adjust to new conditions.
"We do not rule out significant price volatility particularly in the early stages of the policy’s adoption, as the supply-side catches up to demand. Our global supply and demand balance forecasts continue to indicate that the market will remain in a surplus well into the next decade, with the anticipated construction of nearly 7 million b/d of new refining capacity, mostly across Asia and the Middle East, set to drive robust supply-side growth over the coming years. However, similarly strong growth in the demand-s ide, mostly in the EMs, will gradually chip away at the glut, before flipping the market into a small deficit towards the tail-end of our 10 -year forecast period," said the report.
A sharp rise in oil prices, coupled with insufficient or a rollback in fuel subsidies, may lead consumers to scale back fuel consumption, raising the risk of demand destruction across global Ems, according to Fitch Solutions.
The company believes that a more widespread government crackdown on older diesel cars in major European cities would prove negative for overall demand and fleet size growth.
"The current elevated US-China trade tensions have the potential to go either way. A resolution of the dispute set to be positive for economic activity and fuels demand for both markets, while an escalation would further dent global trade and negatively impact economic growth, which would hit consumption in the freight, construction and mining sectors," said the report.
An aggressive surge in diesel production ahead of IMO 2020 could partly offset the expected demand boost that would come from ships converting to run on cleaner marine fuel come January 1 2020, according to the company.
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