Although fuel supply trends are only a crude (no pun intended) indicator of economic activity, the reversal of China from stockpiling diesel to being a net exporter is considerable, and demand for diesel is weak. While the steep contango for diesel indicates that traders believe the low prices are temporary, the glut is so large that inventories are nearing capacity, which may lead to dumping, which would push down spot prices and could also reduce futures prices.
From China Knowledge (hat tip reader Michael, subscription only):
China saw import of diesel oil reach 100,000 tons in January, plummeting 88% year on year, while diesel oil exports were 130,000 tons, a sharp year-on-year increase of 300%, according to statistics from China’s General Administration of Customs.To solve the domestic problems of weak demand and oversupply, China’s major fuel suppliers have to cut down imports and expand exports.
From 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…
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….
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.
The profit margin of processing Middle East Dubai crude into gas oil (diesel) in the Singapore trading hub, or crack spread, for April has sunk below $9.00 a barrel, the weakest since June 2004, versus a record of plus $45 in May 2007.
Even the pick-up that typically accompanies second-quarter refinery maintenance may provide little respite this year, especially with new refineries in Vietnam, China and India all pouring excess fuel onto the market in the next two months…
Meanwhile, with swaps prices in a deep contango of $1.00 till the fourth quarter, traders are leasing onshore tanks or floating storage to stockpile excess fuel — supplies that could quickly sink any recovery even before it gets underway.
“The front-end demand is very weak and will encourage traders to store barrels on hopes of better demand forward,” another Singapore-based trader said. “But if the tanks are filled up, they may dump cargoes in the market at steeper discounts.”
Poor demand due to its slowing economy has turned China back into a net diesel exporter last October, after almost a year as a net importer to stock up for the summer Oympics, as wholesalers shun big purchases from state and independent refiners.
Anonymous Monetarist 
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I visit Japan and Taiwan every year (unfortunately not mainland China). Their economies are hurting badly, but both have government reserves kicking in for projects that are at least keeping some demand in commodities.
I am long term bullish on oil even while I see deflationary pressure could drive it lower.
The last two years have been a real birth of ETFs for all sorts of positions. People realize the value of being able to trade in and out quickly of given macro economic trend.
Oil (as energy) also has that property. It can be used interchangeably for fertilizer production, plastics, as energy to drill for gold or other metals, and for transportation.
I don’t know which sector will rise up first from the recession, but I believe that oil will probably be used as the engine to drive that sector forward.