By Mohi Narayan, Roslan Khasawneh and Ron Bousso

(Reuters) – Refiners around the globe are making the largest profits in gasoil production for years due to stronger demand than anticipated and tight supply, despite worries about Omicron coronavirus’s effect on the global economy.

The demand for fuel to drive trucks, generators, and machines was strong despite the rise in COVID-19 cases around the globe. Governmental measures to stop the spread of the disease were more severe than they had been in 2020, analysts and traders said.

They also noted that high jet fuel prices had reduced availability of middle distillate, which can be used to blend into the diesel pool.

Stronger that expected demand has led to a drawdown on stocks in key trading hubs such as Singapore, Amsterdam-Rotterdam-Antwerp (ARA), and the United Arab Emirates to the lowest in years, supporting prices and refining margins globally. Graphic: Global gasoil prices, https://fingfx.thomsonreuters.com/gfx/ce/mypmnbenavr/Pasted%20image%201642736211631.png

Asian refiner margins have risen to more than 2 years highs in benchmark grade gasoil with 10ppm sulfur content. This month, they made a profit close to 24%.

Vortexa analyst Serena Huang stated that while Asian diesel demand is strong, particularly in Australia, India, and Southeast Asia but not enough has been available to meet it.

Huang said that China’s exports of diesel to India were still restricted by strict export quotas. India exports in January, however, were lower than previous quarters.

Analysts predict that exports will be lower from the East Suez region because key suppliers are experiencing strong domestic consumption. They have almost no cargoes left to ship.

Consulting JBC Energy wrote in a note, “A 140,000 barrels per hour increase in Indian demand, month-on-month is almost equalling 2019, which is keeping a lid to the overall volume available for export.”

It added that diesel exports to Japan and South Korea have been increasing steadily since December. However, the cumulative flow remains below previous years.

Singapore’s middle distillate inventories increased in January, but they remain close to December levels. These were at their lowest level since May 2018, according to Refinitiv data.

Graphic: Gasoil refining margins, https://fingfx.thomsonreuters.com/gfx/ce/zgvomagmdvd/Pasted%20image%201642738785387.png LESS ARBITRAGE SUPPLIES

Europe has seen a decrease in shipments to the United States from Asia. This has resulted in tighter supplies. The benchmark diesel cracks of Europe are well above the average five-year period.

European gasoil margins have been trading at their highest level in five years partly due to very high jet fuel prices, which has meant that refiners are mixing less diesel into the pool.

Gasoil stocks held in independent storage in the Amsterdam-Rotterdam-Antwerp (ARA) refining and storage area fell 8% to 1,686 million tonnes in the week to Thursday, data from Dutch consultancy Insights Global showed, well below their 5-year average for this time of the year of around 2.475 million tonnes.

Adding to the tightness, Shell (LON:)’s 400,000-bpd Pernis refinery in the Netherlands, Europe’s largest, will go into maintenance until June.

However traders are expecting the opening of an arbitrage route from Asia to Europe very soon, which could mean a huge flow in diesel.

The Energy Information Administration reported that distillate stocks in the United States (which include diesel) fell by 1.4 Million barrels to 128,000,000 barrels. [EIA/S]

Richard Gorry from JBC Energy Asia stated, “We would consider the underlying support to gasoil to be fairly healthy demand with a more cautious approach by refiners when increasing refinery run largely due to uncertainty over Omicron although that now seems less of an threat.” Graphic: Global gasoil inventories, https://fingfx.thomsonreuters.com/gfx/ce/znvnelreqpl/Pasted%20image%201642737633617.png