ANALYSIS-Asia diesel market seen going from bad to worse

By Felicia Loo

SINGAPORE, Feb 18 (Reuters) - After falling to near five-year lows, Asian diesel margins may be in for still deeper losses as a worsening global economy deals a harsh blow to industrial and transport demand for a product that two years ago led the barrel.

The grim signs are everywhere: refineries reining in output; traders seeking to keep the fuel in tankers due to a shortage of onshore storages; new Indian supplies flooding the market, even as major buyers like Vietnam become more self-sufficient and Indonesia halts imports due to brimming inventories.

"It seems we are in for a storm," said a trader in Singapore, who declined to be named due to company policy.

As demand from Indonesia and China wanes, traders have pinned their hopes on an unlikely outlet -- lacklustre Europe, where the share of diesel used for passenger travel is relatively higher than the hardest-hit industrial and trucking transport sectors.

Arbitrage sales will hit 635,000 tonnes this month, the highest since last October's record 800,000 tonnes. [O/DISTARB]

But this is an unreliable outlet, as Western stockpiles are also hefty and the colder-than-normal weather will not last.

Nor will the relatively resilient agriculture sector temper the fall, even if farm output remains strong, as it accounts for only about 10-15 percent of global usage. Transportation accounts for just over half all diesel consumption.

"Diesel demand growth is expected to slow down across the board. It's not like farming demand will compensate the slowdown in industrial diesel usage," said Sushant Gupta at Wood Mackenzie energy consultancy.