Europe diesel demand faces slow recovery: Socar Trading

Diesel demand in Europe is unlikely to recover until well into 2021, and struggling refiners in the region will come under further pressure, Switzerland-based Socar Trading's chief executive Mariam Almaszade told Argus.

Almaszade said that storages were full, while "refining margins were very narrow or negative". "Do I expect a sharp demand rebound? No, I do not see it this year and even for the following six to nine months, unless something extraordinary happens — for example, a Covid-19 vaccine becomes available to everyone," she said.

French-grade diesel cargo prices assessed by Argus continue to dwindle, dropping to a $2.20/bl premium to Atlantic basin crude benchmark North Sea Dated yesterday, the lowest since June 1999.

Refiners in Europe are facing serious problems now, Almaszade said. "It is impossible to work in such conditions. I do not rule out some of them leaving the market, potentially those with less sophisticated refineries," Almaszade said.

She said that the firm — which is the trading arm of Azerbaijan's state-owned Socar — was looking at creating a global integrated oil products desk, mirroring the model currently in place to trade crude. "We used to have a sour crude desk, a heavy crude desk and so on. But now it is one integrated desk, and thanks to this — with all the traders sharing information — we have a much better understanding of which crude grades potential clients may need," she said. "And we are thinking of potentially applying the same model to oil products."

Almaszade also said that despite the world's energy transition to a lower-carbon future, Socar Trading still sees a lot of potential in oil in the short- and medium-term.

"The Covid-19 pandemic has made us change our traditional modus operandi, and almost all Azeri Light crude went to Asia," she said. "In a situation when market fundamentals are not working, we realised that the worst thing that could have happened to us was a high concentration risk," Almaszade said.

"The fact that we have different desks and scenarios and the fact that Socar Trading has offices in Singapore, America and Europe gave us a very good understanding of what was going on." "We understand that there are still quite a lot of positions in crude — and specifically third-party crude — which we have an appetite for," she said.

Socar Trading also acknowledges that "LNG and gas in general will play a significant role in the company's future" amid the energy transition.

The full transcript of our wide-ranging interview with Mariam Almaszade will be published in this week's issues of Argus FSU Energy and Argus Global Markets.

By Konstantin Rozhnov