(EnergyAsia, August 5 2014, Tuesday) — For the first time in recent years, the world’s demand for gasoline will grow faster than diesel in 2014 while at the same time, refiners will start up new capacity to produce more diesel and kerosene than gasoline, said the US Energy Information Administration (EIA).

These two trends are causing a tighter global gasoline market as shown by the narrowing spread for the December 2014 futures contracts on the New York Mercantile Exchange (Nymex).

The EIA said that the futures price premium of New York Harbor ultra-low-sulphur diesel (heating oil) over reformulated blendstock for oxygenate blending (RBOB) for December 2014 delivery fell to 22 cents per gallon (gal) on July 8, making this the lowest spread for the products’ December contracts since 2010.

The EIA also noted that the December heating oil-Brent crack spread had fallen from an average 42 cents/gal in January to 35 cents/gal in July while the December RBOB-Brent crack spread widened from five cents/gal in January to nine cents/gal in July.

These trends resulted from a decline in heating oil prices and a rise in gasoline prices, due largely to slower economic growth among developing countries since the start of the year. In July, the EIA said it revised down its forecast for 2014 GDP growth for the developing world to 3.9% from 4.6% in January.

“China’s first-quarter 2014 gross domestic product (GDP) growth was 7.4%, the lowest in a year and a half. India’s first-quarter GDP growth was 4.6%, the eighth consecutive quarter below 5%, and Brazil’s first-quarter GDP growth was 1.9%, the third straight quarter of lower year-over-year growth,” it said.

“Weak GDP growth in these emerging markets has a greater impact on global distillate demand, which is used primarily in the transportation of goods and services needed to improve or sustain an economy, than it does on gasoline demand. Gasoline demand is more closely related to personal income and domestic consumption.”

According to the EIA, the International Energy Agency (IEA) estimates that total non-OECD gasoline consumption growth was 3.8% in the first half of 2014, more than the consumption growth for mid-distillates, which grew 0.7% over the same period.

China’s implied demand for diesel from January to May of 2014 was 3.4 million b/d, almost 70,000 b/d lower than during the same period last year. On the other hand, its implied gaoline demand rose 200,000 b/d to 2.4 million b/d.

The Indian government’s decision to allow increases in the diesel price from its previously subsidised rate along with Europe’s review of diesel support could contribute to a shift from diesel to gasoline consumption later this year.

Further narrowing the gasoline-diesel gap, the EIA said diesel and kerosene supplies are rising, thanks to new investments in refiney upgrades and expansions  in the US and elsewhere. In general, such upgrades to increase mid-distillate yields results in lower gasoline production ratios.

Some of the larger and more recent global refining projects include the 400,000 b/d SATORP refinery in Jubail, Saudi Arabia, which began operating in late 2013 and is configured to produce 216,000 b/d of diesel, kerosene and jet fuel compared to 55,000 b/d of gasoline, according to the Oil Price Information Service.

Saudi Arabia’s other new 400,000 b/d Yasref refinery in Yanbu, due to start up later this year, will produce about 260,000 b/d of diesel, kerosene and jet fuel compared with 90,000 b/d of gasoline.

Indian Oil Corp’s 300,000 b/d refinery in Paradip in northeastern India has the capacity to produce 120,000 b/d of diesel and 80,000 b/d of gasoline when it starts up at the end of 2014.

In the US, refining companies modified their operations to increase their mid-distillates-to-gasoline production ratio from 0.47 in 2010 to 0.52 in 2013.