It's called Peak oil!

Diesel Becomes 'Global Issue' as Premium Soars: Energy Markets

Bloomberg,

Nov. 23, 2011

Soaring demand for diesel and gasoil around the world is depleting stockpiles, sending U.S. prices to the highest level in three years relative to gasoline.

U.S. diesel and heating oil supplies have fallen 16 percent in eight weeks, according to the Energy Department. Stockpiles in Singapore in the week ended Nov. 9 were the lowest since July 2008, according to International Enterprise Singapore, a unit of the trade ministry. Inventories in Europe's Antwerp-Rotterdam- Amsterdam hub were the smallest in almost three years at the end of October, data from PJK International BV show.

Rising fuel imports by China, the world's second-largest oil consumer, are combining with increased heating demand during the northern hemisphere winter to curb supplies. Heating oil futures climbed to 62.69 cents a gallon more than gasoline on the New York Mercantile Exchange on Nov. 14, the biggest difference since November 2008.

"It's a global issue," Edward Morse, head of commodities research at Citigroup Global Markets Inc. in New York, said in a telephone interview Nov. 11. "And it could be worse. We don't know what the weather is going to do and, if China has need for diesel-fired generators as they did last winter, it could tighten gasoil inventories."

Heating oil, which trades as a proxy for diesel, fell 7.55 cents, or 2.5 percent, to $2.9591 a gallon on the Nymex today, while gasoline dropped 4.41 cents to $2.5177, leaving the difference at 44.14 cents. Gasoil on the ICE Futures Europe exchange declined 0.6 percent to settle at $946 a metric ton.

China's Supply

China's diesel inventories fell 6.8 percent in October, the fifth straight monthly drop, as fuel demand increased amid a slowdown in refinery output, according to a newsletter by the official Xinhua News Agency on Nov. 21.

China is facing a diesel shortage that state-owned China Petrochemical Corp., the nation's biggest oil refiner, said is caused in part by lower production from privately held plants after the government reduced retail prices on Oct. 9. Demand for the fuel increased 2.2 percent in October, the National Development and Reform Commission, the country's top economic planner, said in a report on Nov. 16.

"The U.S. is exporting record amounts of diesel to satisfy worldwide requirements," said Andy Lipow, president of Lipow Oil Associates LLC in Houston. "Combine that with low inventories around that world and that makes for a bullish diesel market in the U.S."

U.S. Exports

U.S. distillate exports rose to an all-time high 895,000 barrels a day in August, according to the Energy Department in Washington. Shipments have increased to 948,000 barrels daily this month, based on preliminary weekly reports.

Lower processing margins in Europe caused by the growth of refining capacity in Asia will probably depress operating rates in industrialized nations this winter, according to David Fyfe, head of the oil industry and markets division at the Paris-based International Energy Agency. The IEA, in its Nov. 10 oil market report, cut its estimate for fourth-quarter global daily crude throughput by 260,000 barrels to 75.1 million.

Gasoil inventories in independent storage in Amsterdam- Rotterdam-Antwerp, Europe's oil-trading hub, were 13 percent below year-earlier levels in the week ended Nov. 17, according to PJK International BV, a consultant in the Netherlands.

"Gasoil is very, very tight and that's very much a global issue," Amrita Sen, a London-based analyst at Barclays Capital, said in an interview on Nov. 14. "Unless we start seeing some build in refinery rates, we have to continue drawing and prices will go higher."

Chinese Imports

In the last two months of 2010, China became a net importer of diesel for the first time since November 2008 as refiners increased overseas purchases after electricity rationing forced factories to switch to diesel-fueled generators. Net imports totaled 290,000 metric tons in December.

The country, the world's largest energy consumer, imported 194,474 metric tons of diesel in October, the highest level this year, data from the country's Customs General Administration shows. Refiners increased purchases to ease a domestic shortage after seasonal maintenance cut processing rates. The nation had net exports of 42 tons in September.

"Last year and the year before, there was new capacity in Asia, and China was a net exporter of middle distillates, but that has dried up," Morse said. "I don't think this is a bubble. It's based on a real physical market."

Stockpile Slide

U.S. distillate stockpiles slid 770,000 barrels in the week ended Nov. 18 to 133 million. Inventories of industrial, shipping and heating fuels have slipped 24.7 million barrels in the past eight weeks to the lowest level since December 2008, according to the Energy Department.

Demand, measured on a four-week average, was 5.7 percent above a year earlier in the week ended Nov. 18.

U.S. refiners operated at 85.5 percent of capacity in the week ended Nov. 18, according to department data. Refiners on the East Coast operated at 67.9 percent of capacity.

The profit from turning crude oil into heating oil reached a record high of $41.96 a barrel on Oct. 20 and was at $29.44 yesterday. Returns from producing gasoline were at $9.59 a barrel.

Gasoline has declined as consumption in the U.S. fell this year. Retail demand was 4.5 percent below a year earlier in the week ended Nov. 18, MasterCard Inc. said yesterday in its SpendingPulse report.