September 26, 2017 / 4:28 AM / a year ago

Rising diesel consumption is main driver for higher oil demand in 2017: Shell

SINGAPORE (Reuters) - A massive surge in diesel fuel demand this year has been the main driver for higher crude oil consumption in 2017 along with buying to fill up strategic petroleum reserves, an executive from oil major Royal Dutch Shell said on Tuesday.

FILE PHOTO: A worker fills up a bulldozer with diesel at Phoenix petrol station in Las Pinas city, Metro Manila, Philippines June 7, 2016. REUTERS/Erik De Castro/File Photo

Diesel demand for 2017 is making up about 50 percent of the year-on-year demand growth in oil products after only making up 27 percent of the increase in last year’s consumption, said Mike Muller, Shell’s vice president of crude trading and supply, at an industry conference in Singapore. In 2016, gasoline and other oil products pushed demand higher, he said.

The recent hurricane that shut down refiners along the Gulf Coast of the United States also contributed to higher demand for diesel and other middle distillates, he said. Hurricane Harvey dumped record amounts of rain on the Texas and Louisiana coasts and caused about 4.4 million barrels per day of refining capacity to close, or about 24 percent of the U.S. total.

To make up that shortfall in oil product output buyers have turned to European refiners while European buyers have raised imports from processors in Asia.

“The market of the world had to resupply. And how do you resupply diesel that was normally being exported from North America, 1 million barrels per day of exports, you suck away at Europe and then Europe has to in turn replenish from Asia,” Muller said.

The longer-than-usual voyages of ships moving fuel from Asia to Europe “means you have one month plus worth of production going on ships just to meet demand,” he said.

“That rebalancing has given the semblance of demand which may ease away once the hurricane imbalances have been rectified.”

Muller also pointed to market participants who are taking advantage of lower oil prices to fill strategic storage as an impetus for higher crude demand.

“Stock builds are also counted as demand, so when you have people building strategic petroleum reserves… it is oil going away,” he said.

Reporting by Mark Tay; Editing by Christian Schmollinger

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