Asia diesel margins climb to more than 2-month high on India buying spree

By Jessica Jaganathan

SINGAPORE (Reuters) - Asian diesel margins climbed to their highest in more than two months on Friday as a buying spree from India that began in April and more regional refinery maintenance than usual has tightened supply for the fuel, industry sources said.

If the margins hold at the elevated levels, it could lift Asian refiners' profits over the summer. Diesel margins are a major component of refining profit as the fuel typically makes up 30 to 40 percent of an oil processor's production.

Based on processing Dubai benchmark crude, diesel margins climbed to $11.86 a barrel on Friday, highest since April 25, when it was $11.94, Reuters data showed.

"(The margin) is unseasonably strong ... because maintenance in the first half was so heavy and exports were still maintained at decent levels, so refineries will need to restock in the third quarter," said analyst Nevyn Nah at consultancy Energy Aspects.

About 330,000 barrels-per-day (bpd) more refining capacity in Asia was shut over the first half of this year compared with the same period in 2016, Nah said.

Indian state-owned refineries are also undergoing heavy maintenance until the end of this year, upgrading diesel units to produce cleaner fuels to meet new Euro IV standards implemented in April.

That has prompted large-volume purchases of diesel by Indian state-owned refiners in the spot market starting from April, with the country's imports of the fuel on track to hit the highest since 2011, boosting margins for the fuel.

India does not typically import diesel and is a net exporter of the fuel.

Singapore diesel stocks dropped to a 5-1/2-month low in the week ended June 28, the latest official data showed, likely pulled down by India's imports and a fire at Singapore Refining Company's refinery in mid-June.

Also, diesel exports from Taiwan, Asia's fifth-largest exporter of the fuel, fell 10 percent January-April compared with the same period a year ago due to several refining units undergoing maintenance at Formosa Petrochemical Corp's Mailiao refinery.

The Mailiao refinery is not expected to export diesel in the spot market until the fourth quarter of 2017, which could also boost margins, traders said.

A Formosa spokesman was not available for comment.

Summer demand from the Middle East has also kicked in just as a fire-hit secondary unit in Abu Dhabi National Oil Company's (ADNOC)'s Ruwais refinery is expected to be shut until early 2019 for repairs. This is expected to pull barrels from Asia to meet demand there, traders said.

But Asia could still get bogged down by a bump in supplies once most of the refineries return from maintenance in August, Energy Aspect's Nah said.

India's diesel imports could also fall once the monsoon season there is in full swing. Monsoon rains in India typically reduce the need to use diesel for irrigation pumps.

(Reporting by Jessica Jaganathan; Editing by Tom Hogue)