A 19% Profit Slide Looms for Fuel That Underpinned Oil's Rebound

(Bloomberg) -- The beginning of summer may herald the end of a boom for the fuel that underpinned crude’s rally into a bull market last year.

Profits from turning benchmark Dubai crude into diesel are poised to shrivel in Asia -- the world’s biggest oil-consuming region -- as refiners from Japan to India prepare to boost processing after slowing down during spring-season maintenance while heating demand that buoyed the market in winter fades, according to a Bloomberg survey of five traders and analysts.

A 19% Profit Slide Looms for Fuel That Underpinned Oil's Rebound

The renaissance in diesel, which is used to power everything from trucks to ships and factories, over the past couple of seasons had contributed to crude’s recovery from the biggest price crash in a generation. While oil is still riding a rally and has reached levels last seen in 2014 on the back of rising geopolitical tensions, falling inventories and OPEC’s supply curbs, the potential fuel weakness adds to other threats such as record U.S. production.

With the winter heating season over, margins for the fuel -- also known as gasoil -- are forecast to shrink by almost 19 percent in June from current levels, said WengInn Chin, a senior oil-market analyst at industry consultant FGE. China, a major exporter that has flooded the market with excess supply in the past, may ship more diesel abroad this year, he said.

The Asian margin, known as the crack spread, peaked in January after jumping more than 40 percent in the second half of last year, according to data compiled by Bloomberg from PVM Oil Associates Ltd. It has averaged about $15.40 a barrel so far this year, compared with an average of less than $12 over the first four months of 2017.

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