Extract from demand:
European oil demand fell y/y by 0.15 mb/d to 15.73 mb/d in August, led again by a record decline in German demand (-0.38 mb/d y/y) that took EU-5 demand lower y/y by 0.35 mb/d. June and July demand were revised up, with July revised by a whopping 0.3 mb/d, led by Turkey, with European demand now higher y/y by 0.13 mb/d. Diesel demand was revised higher by around 0.14 mb/d to now show growth of 0.11 mb/d. Consequently, European diesel inventories were revised lower to a build of 7 mb in July. We expect August demand to be revised higher too.
European diesel demand totalled 6.6 mb/d in August, lower y/y by 0.2 mb/d, as agricultural output slumped on extremely hot weather. In Germany, the third largest agricultural producer in the EU, diesel demand fell y/y by 0.17 mb/d amid a nationwide drought which prompted the government to issue emergency subsidies to farmers. The decline in German demand has been relentless since May, with diesel and naphtha the two main culprits. Over the first seven months of the year, German heating oil demand was lower by a staggering 22.8% y/y at an average of 0.26 mb/d, according to lagged national statistics.
Extract from refinery runs and stocks:
Refinery runs rose m/m by 0.51 mb/d and y/y by 0.13 mb/d to 13.7 mb/d—the first y/y increase since February, and in contrast to our view that hot weather would disrupt refinery operations. European diesel supply averaged 6.0 mb/d in August, higher y/y by 0.1 mb/d—largely thanks to a 0.4 ppt y/y rise in diesel yields, although they were flat m/m. Germany was a notable exception, recording a 0.1 mb/d y/y decline in diesel supply due to hot weather. Runs will likely come in lower y/y over September–October thanks to higher turnarounds as well as marginal run cuts in the Mediterranean and NW Europe owing to very weak gasoline cracks. While the sharp rise in fuel oil and a weakening in Urals has helped push Med margins back to black, NW European margins remain under pressure, with diesel taking the sole burden of carrying the margins for now. That said, any run-cut related diesel output declines in October will be partially offset by increased distillate output from the 0.4 mb/d Pernis refinery thanks to the start-up of a new solvent deasphalter unit, as well as a new coker at Exxon’s Antwerp refinery.