* Demand for diesel, jet fuel drives up crude oil prices
* China, Europe power stronger oil demand in 2017
* Middle distillates growth takes industry by surprise (Adds graphics, detail on fuel demand)
By Florence Tan
SINGAPORE, Sept 26 (Reuters) - Strong oil demand growth in emerging economies led by China and India but also from Europe is drawing down oil stockpiles faster than expected, putting the global market firmly on track to rebalance, senior industry executives said on Tuesday.
A surge in demand for diesel and fuel stock draws following U.S. refinery outages resulting from Hurricane Harvey have further helped thrust crude prices to near $60 a barrel, analysts said.
Global oil benchmark Brent rose to the highest since July 2015 on Tuesday after Turkey threatened to cut crude exports from Iraq’s Kurdistan region.
Prices rallied in the third quarter of this year as the Organization of the Petroleum Exporting Countries and non-OPEC producers cut output, and as Harvey knocked out large portions of the U.S. refining industry.
“We see the market over the next six months going well above $60 for a simple reason ... surprisingly good demand,” Adi Imsirovic, head of oil trading at Gazprom Marketing and Trading, told the S&P Global Platts APPEC conference in Singapore.
“We see the market tightening strongly, we see oil moving out of storage quite fast,” he added.
The premium of first-month Brent futures over second-month futures is at the highest since April 2016. That market structure, known as backwardation, indicates there is strong immediate demand for oil. LCOc1-LCOc2
“There are forecasts that demand could pass the threshold of 100 million barrels per day (bpd) of crude and liquids even in the next months or next year,” Eni Trading and Shipping Chief Executive Franco Magnani said at the conference.
“Most of the economies in the world are still growing or relatively stable,” he added.
The resumption of oil demand growth in industrial nations and strong consumption in China are key in driving oil demand up 1.88 million bpd in 2017 from 2016, according to PIRA. The consultancy expects demand growth to stay strong in 2018, at 1.78 million bpd, powered also by India.
What’s taken many in the industry by surprise is strong demand for distillates such as diesel and jet fuel.
“The big surprise ... has been on the distillate side, where it looks like we will hit 1.6 percent growth,” Matti Lehmus, vice president of oil products at Finnish refiner Neste Oil, said last week at an industry gathering in Brussels.
Global demand growth is higher than that seen in the last couple of years, “coming somewhere close to 1.6 to 1.7 million barrels per day and is driven by distillates”, Janet Kong, BP’s chief executive, supply and trading, Eastern Hemisphere, told the Singapore conference.
Strong fuel demand was compounded by damage caused by Harvey, which hit the U.S. Gulf Coast in August and knocked out almost a quarter of the country’s refineries, resulting in large-scale fuel stock draws and increased imports.
“This is a products-led rally ... Even prior to Harvey, products were driving the (price) rally and were incentivising high refinery runs ... What Harvey did is accelerate a process that was already underway,” said Robert Campbell, head of oil products analysis at Energy Aspects.
Despite strong fuel demand and soaring Brent prices, U.S. crude futures have risen much less, widening their discount against Brent to its widest since August 2015.
Jeffrey Currie, Goldman Sachs’ head of global commodities research, said this was in part due to the ability of U.S. shale producers to raise output despite low prices.
Still, to keep up momentum in market rebalancing, OPEC and non-OPEC producers will have to extend output cuts beyond next March, said Nadia Martin Wiggen, senior vice president of markets at Rystad Energy.
“If OPEC do not extend their cuts beyond 1Q 18, we would no longer see stock draws from 2Q 18 and we forecast builds from 3Q 18,” she said.
Reporting by Florence Tan, Roslan Khasawaneh, Seng Li Peng, Rania El-Gamal and Mark Tay in SINGAPORE; Additional reporting by Ron Bousso and Libby George in LONDON; Editing by Henning Gloystein and Dale Hudson