(EnergyAsia, September 20 2012, Thursday) — Latin American demand will push ultra low-sulphur diesel premiums against North Sea Brent crude to a four-year-high of US$30 mark in the fourth quarter, but, “the party will not last,” predicts US-based consultant ESAI.

In its latest Global Transport Fuels Outlook report, ESAI said the region’s diesel deficit will exceed 720,000 b/d in the second half of the year, up 200,000 b/d from the first half, on growing domestic demand and limited refining capacity.

ESAI principal Andrew Reed noted that while the US maintains a strong diesel surplus, Latin America’s import requirement will strain Gulf Coast exporters’ ability to supply both markets and Europe at the same time.

“Volumes typically earmarked for Europe will instead move south, driving Rotterdam diesel prices high enough to attract arbitrage barrels and entice European refiners to provide more marginal barrels.

“ESAI expects that stronger diesel fundamentals in the remainder of the year will lead to an even bigger spike in the spread than last year. ESAI forecasts that this spread will test the US$30 level in the fourth quarter, and that it will remain above the US$20 mark into the first quarter of 2013.”

But he cautioned this high-margin trade will not last as US productive capacity will expand and Latin American and European demand will start to soften by early next year.

In the Gulf Coast, refiner Motiva is expected to start up its expanded CDU capacity while Motiva and Valero will add a combined 175,000 b/d of hydrocracking capacity, beefing up their ability to boost exports.

ESAI expects Latin American and European fuel demand to weaken seasonally in early 2013 with the end of Northern Hemisphere’s winter heating season, causing margins to plunge back into the teens.