Bolstered by legislation aimed at removing sulphur, Europe is the largest market for automotive diesel. Nearly half of all diesel cars are bought in the continent. Fifty-five percent of European cars run on diesel, compared with just 5% of US cars use diesel.
European diesel demand far outstrips its local refining capacity. This shortfall has had far-reaching implications for refining economics worldwide. When refiners identified this demand for mid-distillate production they invested in additional capacity.
This came on-stream just as economic growth stalled. Oversupply, mounting inventories, subdued demand and new refining capacity combined to create weaker pricing conditions for diesel markets.
There are now signs of recovery. Europe has lost a significant portion of its refining capacity. Inventories are declining. The growing demand for gas oil in emerging economies, especially in the power sector, is diverting international supply away from European markets.
Jet fuel prices too are strengthening again after several years in the doldrums. Civil passenger numbers - a key determinant of airline demand - recently returned to pre-recession levels. Airbus and Boeing are predicting 5% annual growth in passenger numbers until 2030.
Both markets remain susceptible to environmental regulation. Increased fuel efficiency will dampen demand. Biofuels will factor increasingly in both diesel and jet fuel blends.