According to Cnstock, global demand for diesel is expected to decrease this year, which is a rare phenomenon for diesel that powers the global economy. The International Energy Agency (IEA) based in Paris has been lowering its demand forecasts for this year for months, now predicting a reduction of 0.258 million barrels per day in gasoline (a collective term for diesel fuels) consumption. Apart from the pandemic, this would be the largest decline since 2016, with demand only falling a few times in the past 15 years.

Although this is just a small drop compared to the consumption of over 28 million barrels per day in the global diesel market, this rare reversal is noteworthy for those closely monitoring global economic activities. Diesel is a significant component of petroleum demand, powering trucks, autos, and ships, and used in industries ranging from agriculture to construction.

Vikas Dwivedi, Global Energy Strategist at Macquarie Group, stated: "The days of diesel as a primary fuel for oil demand growth are over." He mentioned that although demand should rebound next year, it will not keep pace with the expansion of supply, leading to a "significant imbalance."

Slowing demand growth.

In India, diesel sales only grew by 1.8% from January to October, the slowest pace since the sharp drop in sales caused by the lockdown in 2020. In the USA, data shows inventories are at a seasonal high for the past two years, with futures contracts in a put spread structure - a sign of oversupply - marking the first occurrence of this scenario in a year since the pandemic.

In northwest Europe, diesel inventories are expected to be higher than seasonal norms. Meanwhile, data from the Intercontinental Exchange Europe futures shows that fund managers have been net short on diesel (usually net long) since late summer - despite the premium of benchmark futures over crude oil rising since the end of last month. It's worth noting that different industries use different types of diesel. For example, marine gasoil is used to power ships, while ultra-low sulfur diesel is commonly used for road vehicles.

IEA Oil Market Analyst Ciaran Healy stated that weakened industrial activity and reduced consumption in several key regions are undermining demand for 2024. He added that, due to mild winter temperatures in Europe and Japan, the use of heating oil is "substantially lower in the first quarter of 24."

Supply capacity is increasing.

According to consulting firm Wood Mackenzie, the daily crude oil distillation capacity of global refining systems is expected to increase by a net 1.5 million barrels this year. And there is almost no sign of slowing down, with further growth expected in 2025 and 2026.

Of course, it is worth remembering that the IEA predicts global gasoline demand will resume growth in 2025, but only by 0.176 million barrels per day, still below this year's decline. Both Wood Mackenzie and Rapidan Energy Group forecast stronger diesel demand in the U.S. in 2025, although this depends on the continued decline in interest rates.

According to consulting firm FGE, a new environmental regulation taking effect in May next year will also boost coal consumption in Europe, as it will drive ships to use diesel fuel. However, this is not enough to prevent an overall annual decline in demand.

Macquarie expects that the speed of oversupply of diesel next year will be faster than this year and the same for 2023. Dwivedi said, "The end of diesel demand growth has not yet arrived, it will just slow down. We believe future demand growth will reach 0.2 million-0.3 million barrels per day, rather than 0.4 million-0.6 million barrels per day."