Middle distillate inventories in the U.S. have declined by more than 20 million bbl since the year began, halving the overhang in stocks to 17 million bbl, Energy Aspects said in the April Middle Distillate report.

Earlier concerns that a diesel rally would be short-lived are likely to prove unfounded, Energy Aspects said in the report. In fact, demand has strengthened, buoying margins and encouraging higher refinery runs, while in addition, a stronger gasoline market compared to last year suggests that refiners may refrain from switching to maximum diesel yields over the summer. Output from new Asian refineries coming online this summer will take a while to stabilise, and so this source supply is unlikely to appear until the year-end. Global distillate fuel supplies will exceed demand by just 12.000 b/d in Q2 this year, compared to 756,000 b/d in the first three months of the year. That’s the lowest excess since demand actually outpaced supply by 151,000 b/d during Q2 last year, according to Energy Aspects data.

“We remain constructive on diesel into the summer on a better demand picture and supportive developments on the supply side, with potential for upside surprise in early Q3,” Energy Aspects said in the report. “After a few dismal years, diesel may finally be a support for global oil demand growth this year.”

In Europe, the year seems set for its strongest economic period since 2011, which Energy Aspects says is “hugely positive” for the middle distillate market. PMI readings and business confidence reports appear immune to uncertainties over Brexit, recent terror attacks in the U.K., Sweden and Germany and political upheaval in France.

IHS Markit’s composite index for the Eurozone rose to 56.4 in March, which, combined with the previous two readings, suggest the currency area enjoyed its strongest quarter of growth since 2011. New passenger car registrations across the EU are up 6.2% year on year across the first two months of 2017, led by 8.1% year on year growth in Italy.

Gasoil stocks in the northwest European trading hub of Amsterdam-Rotterdam-Antwerp have been lower year on year every week since the start of January. Europe will also be competing to some degree with North Africa, where heavy Q2 maintenance and refinery project delays have boosted import demand.

Distillate supplies from Russia, which represents some 500,000 b/d, or 40%, of European imports in the spring, is not expected to increase significantly due to a strengthening in the Russian currency. Energy Aspects forecasts Russian refinery runs to fall to 5.35 million b/d in April, down from approximately 5.5 million b/d in March due to maintenance.

“So even as European refineries start to return from turnarounds this month and next, East of Suez resupply, which typically accounts for around 30% of European gasoil imports at this time of year, looks increasingly uncertain amid peak Asian and Middle Eastern maintenance,” Energy Aspects said in the report.

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