Listen to our three-part podcast series looking into the outlook of the European diesel market in 2025.
In this part one, our market experts - Benedict George (Deputy Editor - European Products) and George Maher-Bonnett (Market Reporter – European Products) - discuss the outlook for European diesel demand to provide key insights:
With demand generally low and the tone downbeat, the direction the market is looking to head towards this year
The impact of economic growth levels and industrial activities of key European economies on diesel values and refinery margins
The accelerated rate at which petrol and hybrid vehicles are entering the consumer market compared to diesel vehicles
The role of biomandates in the decline of diesel consumption and demand
Man: Hello, and welcome to part one of a three-part podcast series created by the Argus European products team. The series is focusing on the outlook for the European diesel market in 2025, and the three parts are going to focus on the outlook for European diesel demand, for European diesel import supply, and thirdly on European diesel production. So part one is going to focus on European diesel demand, where we think that's going in 2025.
Benedict: My name is Benedict George. I'm the deputy editor of the Argus European Products Report, and I'm joined today on the podcast by George Maher-Bonnett, who's our diesel market reporter in Europe. He assesses our diesel prices and talks daily with traders and brokers active in that market. Thank you for joining us, George.
George: Thanks, Ben.
Benedict: What do we think is going to happen next year in the European diesel market? The tone is pretty downbeat, isn't it? It's pretty bearish.
George: It sure is, for sure. I think demand in general is pretty low. I think we've seen a pretty meager year in terms of economic growth. There are plenty of headwinds that have buffeted a lot of European economies, those which are most often looked at and considered when assessing market sentiment. So that's been weighing on outright diesel values this year, as well as refining margins, that's for sure. And to be honest, it looks as though that's set to continue into next year.
Benedict: I agree. I think I hear that from a lot of traders in the market. There's not much hope for European industrial activity, manufacturing, which is the aspect of economic activity that is most important for diesel consumption, because diesel is the ubiquitous fuel for trucks, for the commercial vehicles that are moving goods around, and particularly, of course, intensively used by industries like steel and mining and wood and pulp and cement and this kind of thing, where there's a lot of trucking around and very heavy parts and materials. And these industries are performing very, very poorly in Europe. I mean, performing poorly is a sort of matter of perspective, I suppose, because the industries are just moving out of Europe to other parts of the world, particularly East Asia, where production is more cost-competitive.
But there's not a lot of hope that that will reverse. I mean, and even if we see growth in the overall economy next year, even if we see growth in manufacturing next year, we're very unlikely to see significant growth in these kind of heavy industries, which are extremely diesel intensive.
George: Absolutely. And I think what we're also likely to see a continuation of is a kind of structural shift away from diesel consumption in much of Europe. So not only do we have deindustrialization, which is touching the kind of primary markets such as Germany, but we also have a switch away from new vehicle registrations which are diesel-powered. We're seeing a trend which has obviously been continuing for a fair few years now, that petrol and petrol hybrid vehicles are entering the market at a much more accelerated rate than diesel vehicles. They're yet to match essentially the same market share, but they are steadily growing. And, you know, across many, again, primarily Northwestern European economies, we're seeing declines in new diesel car registrations by up to about 10% on the year to date in 2024.
So yeah, that's another kind of aspect to be considering there. So if we look beyond the economy, but actually then at the consumer market, where, of course, that still is, you know, a big wedge of diesel demand in Europe. Yeah.
Benedict: So it was probably since the Dieselgate scandal, wasn't it, in 2015, that was when VW basically, not to go down a rabbit hole, but VW installed devices on some of their vehicles that would reduce the nitrous oxide emissions that were detected under test conditions but would not reduce the nitrous oxide emissions under normal conditions. Anyway, that was very public and famous and probably did a lot of damage to the public perception of diesel as a fuel because that specifically concerned diesel cars.
Diesel does emit a lot more nitrous oxides than petrol, but it actually emits less carbon monoxide than petrol, than gasoline, that is. But the consumer public perception of diesel has probably shifted towards a perception that diesel is very environmentally unfriendly. And that's probably contributed to why diesel cars are losing more and more market share in Europe.
There were some policy responses to that or, you know, I suppose possibly responses to that, but policy did shift in the last 5 or 10 years or so in the UK and in Germany. There are heavier taxes on diesel cars than on gasoline cars under some circumstances. So whatever the combination of reasons behind it, yes, consumers are buying fewer and fewer diesel cars each year.
George: You know, we're looking at the most recent numbers from the SMMT, which is a UK-based motor industry association. We continue to see that slide in diesel vehicle registration numbers. So in November, we saw a 10% slide in new diesel registrations. That's essentially down to 9,000, 9,500 pretty much last month, whereas petrol, we're seeing, you know, it's taken an ever-increasing market share down on the year by just over 15%. But petrol registrations, you know, they're up to 70,000. So, you know, more than sevenfold higher than diesel at this point. So that really does speak to the structural transition, you know, heavy movement away from diesel car registrations, which were, in fact, lower than any other class of vehicle that the SMMT reports on.
Benedict: You've actually got about four times as many battery electric vehicles, cars, this is passenger cars, sold in the UK in November versus diesel. Battery electric is a much more popular type of new car than a diesel car now. Battery electric is nowhere near petrol, but it's much more popular than diesel.
The other important thing for us to point out is there's a lot of...people often share, you know, data on new vehicle sales. But the new sales of diesel are actually so low that the outright number of diesel cars on the register is actually falling. There are more diesel cars sold out of the country and just scrapped than there are new diesel car sales. So the number of passenger diesel cars on the roads is falling in the UK, in France, in Germany, in most of Northwest Europe. It's still rising in Spain and Poland and a lot of Eastern Europe. In fact, it's still rising. But in Northwest Europe, the actual number of diesel passenger cars has been declining for years.
George: You spoke also moments ago to the idea that, you know, there was industry kind of in the spotlight on diesel emissions, in particular, from the VW scandal. But then, of course, we saw and we have consistently seen a regulatory shift towards a greater uptake of bio content in our road fuels. Here, bio mandates are also playing a role in the structural decline in diesel consumption. It's not as though consumers are choosing not to. It's more so what they're putting in their cars or transport fleets if you're an operator for logistics. It's containing less diesel than it did, you know, say, 10 years ago, for example. And those bio mandates are only going to increase.
So essentially, bio mandates are weighing on demand. That's for sure. But it's just a structural shift away. I don't think there's any change in consumer behavior there whatsoever. It's more how that legislation is tightening the uptake in traditional carbon-based road fuels, right? So that's certainly a bearish factor on diesel demand for sure.
Benedict: For sure. And we had this one-off reversal of that trend in Sweden in 2024, where Sweden was going to move to a biofuel blending mandate for diesel of 30% or 35%. And they actually cut it down to just 6% in 2024. So there was this huge cut to demand for biodiesel blending components and addition of fossil blending demand, which traders said was around a million tons over the whole year of extra fossil demand for diesel in Sweden. But that was a one-off. And now that's staying at 6% in Sweden. And in theory, the idea is that that mandate is going to rise again in Sweden in the coming years. That's going to be a really unusual thing. Generally, these mandates just increase, as you say.
George: And it's interesting because, you know, we are seeing pushback not just against bio mandates, but also in the car industry, right, where we see domestic European car manufacturers increasingly uncomfortable with meeting noncombustible engine deadlines, right, i.e. to start producing exclusively electric or hybrid vehicles from certain dates, right? That is something that we came across ourselves at our October conference in Berlin, didn't we? And there was an increasing sentiment in the room that, you know, car manufacturers are essentially trying to lobby or applying pressure on either Brussels or national parliaments to delay kind of the ban on diesel and gasoline engines, new diesel and gasoline engines being put on the road, right?
And so that's something that we've, of course, experienced here in the UK with Rishi Sunak, who pushed back that kind of ban on oil-based combustible engines from 2030, I believe, until 2035. This could be something that actually takes great attraction across the EU, in which case, you know, that might well be a bit more supportive for demand, and the market would have to rebalance as that structural demand shifts, you know, and the pendulum comes back, I suppose, a bit closer towards greater diesel consumption on the continent. Yeah.
Benedict: There's a huge regulatory policy uncertainty. Right. I think people in the biofuel space are very aware of this. And in the fossil fuel space, people have to think about this a little bit less maybe. But in terms of something like an outright ban on new vehicle sales of internal combustion engine vehicles, we're looking at this kind of...automobile manufacturers are looking at this huge uncertainty where governments technically have said that from 2030 or 2035, it won't be legal to sell new internal combustion engine vehicles.
But governments are there making promises on behalf of different governments basically. These are democratic countries in Europe where there are going to be one or two election rounds between now and 2030, even more before 2035. So governments are making...you know, a party is making a commitment on behalf of the opposition party in some cases.
So I think we have to wait until we're much closer to the time before we have a clearer idea whether those bans are really going to happen on the dates they've been discussed. But of course, you know, that doesn't help a car manufacturer who has to make investment decisions as to their capacity to produce internal combustion engines or alternative fuel engines. So you can understand the concern from the car manufacturers.
And in terms of the impact on diesel demand, even if there is not an outright ban on the date that it's currently being touted for, the mere discussion of a ban is a signal of intent from policymakers. Policymakers obviously think that voters want measures to be taken to reduce the usage of diesel and gasoline cars. And we can only assume there will be more policies to that effect.
George: Absolutely.
Benedict: I mean, I'm looking at the Eurostat data actually right now for the domestic deliveries of road diesel in the total EU and Germany, Spain, France, Italy, Poland. And some of these numbers are extraordinarily weak. I mean, comparing July 2024 against July 2019, so July, just five years from before COVID until this year, German diesel deliveries came down from about 3.4 million tonnes in July 2019 to about 2.9 million tonnes. So about half a million tonnes or about, what is that about? Between 10% and 15% decline of diesel deliveries in Germany in 5 years.
In Spain, we're looking at about 200,000 tonnes down out of about 2.2 million tonnes. So that's nearly 10% decline.
George: Which is a surprise. It's a surprise given...
Benedict: It is a surprise actually in Spain.
George: You know, essentially one of the most resilient EU economies so far this year.
Benedict: Spain is a really interesting case. Spanish ownership of diesel cars in the passenger car fleet has increased by contrast with the countries further to the North. Spanish ordinary households own more diesel cars than they used to. And, as you say, the Spanish overall economy has grown unusually rapidly in the last year or two, has really deviated from the wider trend in Europe by growing quite strongly. So very interesting case in Spain.
But, you know, France is roughly flat diesel demand over the last five years. Actually, Italy is roughly flat, and Poland actually surprisingly roughly flat as well over the last five years. So it's roughly flat, or if you're in Germany, it's really steeply down.
George- If you were intrigued or wanted to discuss the content of what was just spoken about here with us today further, we're more than happy to hold conversations with you, our listeners, via our ICE accounts or via WhatsApp. And please do get in touch to chat about the market further.
Benedict: This has been the first part of a three-part podcast series focusing on the outlook for the European diesel market in 2025. And if you're interested in more aspects of that story, do look out for part two about the outlook for European diesel import supply, and part three on the outlook for European diesel production, refinery production within Europe.
George: Thanks for listening
Benedict: Thanks very much for joining me, George.
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