Asia's diesel glut to ease as BP ships to Europe

Asia's diesel glut to ease as BP ships to Europe

Nesa Subrahmaniyan, Bloomberg, Singapore

Asia's diesel glut, caused by falling demand in countries
including China and Thailand, may ease as traders such as BP Plc
and Morgan Stanley ship the fuel to Europe to ease shortages.

European supplies are being drained to meet demand in the U.S.
after Hurricane Katrina shut refineries. About 867,000 metric
tons of diesel, enough to fill 15 million Toyota Camrys, is being
exported this month to Europe, mainly from Singapore and South
Korea, according to data compiled by Bloomberg.

Growth in Asian diesel consumption is slowing because of
higher prices. In Thailand, the government removed diesel
subsidies on July 13, boosting prices by 63 percent this year. In
China, suppliers reduced imports because domestic prices
controlled by the government aren't high enough to cover costs.
Malaysia is planning further cuts in subsidies after two fuel
price increases in the past four months.

"Demand growth is at a standstill in Asia," said Jason Lee, a
diesel trader at Seoul-based SK Networks Co. "Purchases from out
of Asia are helping to provide support for the market."

BP, Europe's biggest oil company, and Morgan Stanley, one of
Wall Street's two biggest oil traders, booked as many as five
tankers to ship diesel to Europe in August and September.

Most of the cargoes heading to Europe are replacing fuel
that's being shipped to the U.S. because of shortages after
Hurricane Katrina came onshore on Aug. 29, analysts said.

"It's largely due to the pull from Katrina," said Kurt Barrow,
a Singapore-based analyst at energy consultant Purvin & Gertz
Inc. "It's the domino effect from the U.S. Gulf Coast."

BP has booked the Energy Champion to load 67,000 tons of
diesel on Sept. 16 from South Korea. Morgan Stanley has booked
the Nord Stream and Petali Lady to ship 130,000 tons of the fuel
to Europe in late September, Bloomberg data showed.

South Korean refiners including SK Corp., S-Oil Corp. and
Hyundai Oilbank Co. are among companies selling diesel to traders
who are shipping it to Europe.

Oil traders are taking advantage of the arbitrage, or profit
to be made by selling oil at a higher price in Europe as demand
slows in Asia.

"The arbitrage shipments will help to support the market," Seo
Hyo-Won, a trader at S-Oil Corp., said in Seoul.

Italian auto diesel demand rose 7 percent to 1.85 million tons
in August from the same month a year earlier, the Industry
Ministry in Rome said on its Web site Sept. 13.

Gasoil, or diesel, swaps for September delivery have fallen 8
percent to S$73.60 a barrel yesterday in Singapore from a record
S$79.95 a barrel on Sept. 1.

In Europe, gasoil for October delivery on London's
International Petroleum Exchange on yesterday rose S$15.75, or
2.7 percent, to S$591 a ton (S$80.63 a barrel).

Imports of diesel by China, the world's largest oil user after
the U.S., declined 33 percent in July to 22,334 tons, or 163,708
barrels, from a month earlier, according to the Beijing- based
Customs General Administration of China.

In Singapore, inventories of middle distillates, which include
diesel and jet fuel, rose to a three-week high for the week ended
Sept. 7. Stockpiles gained 7.7 percent to 8.6 million barrels
compared with a week earlier.

Thailand's diesel sales fell 7.2 percent in June from May,
according to the most recent data available. Demand may have
slipped further since then after the government scrapped its
subsidy on the price of the fuel in July, traders said.

Indonesia's government may raise fuel prices by at least 50
percent in October as soaring subsidies threaten plans to cut the
budget deficit, Planning Minister Sri Mulyani Indrawati said in
an interview yesterday.

"If China and Indonesia increase prices, then demand will drop
a lot," said Ong Eng Tong, a Singapore-based consultant for
German oil trading company Mabanaft International GmbH. "We may
have more supplies in the market then."