OREANDA-NEWS. October 06, 2015.  Falling demand for diesel cars following the Volkswagen scandal could be positive for European refiners in the long term if buyers opt for gasoline-powered vehicles instead, Fitch Ratings says.

The uncertainty created by changing market trends is also likely to highlight the benefit of having a strong retail network, but if consumer distrust of diesel accelerated the switch to electric vehicles or other alternatives the impact could eventually be broadly negative for all refiners.

It is too early to assess the full implications of the Volkswagen emissions test scandal, but one near-term effect could be a shift back towards gasoline engines in Europe due to changing consumer preferences and potentially new emission limits and tests from European authorities. Higher gasoline sales in Europe could be positive for the European refiners, especially those with less complex assets.

European refineries are geared towards gasoline production because many were built decades ago, before diesel became such a popular fuel. As diesel cars became more popular this created an oversupply of gasoline and a shortage of diesel, which needs to be met with imports, largely from Russia. Russian refiners could suffer if there is a European shift to gasoline, as the diesel they export mostly goes to Europe.

European refiners exported excess gasoline primarily to the US. This became harder in the last couple of years as the shale oil boom increased refinery output in North America, leading to depressed refining margins in Europe.

But even a fairly significant move in new car sales towards gasoline will take time to feed through into fuel sales, because diesel cars have represented the majority of sales in western Europe for eight of the last 10 years, and most of these vehicles will remain on the road.

In the meantime uncertainty about the outlook for demand will create difficult decisions for refiners, including whether to go ahead with projects to expand diesel output. ExxonMobil and Lotos SA are among the refiners planning this type of project, which can take up to five years to complete. If diesel demand does fall and prices weaken, refiners that operate their own large retail networks will probably feel a smaller impact than those that have to sell their fuel in the wholesale market.

Longer-term repercussions from the Volkswagen crisis are even less certain, but several potential consequences could drag on both diesel and gasoline demand. These include a more fundamental change in consumers and regulators' attitude towards emissions and fuel efficiency that accelerated growth of vehicles with alternative powertrains, including fuel cells, electric and hybrid engines. It could also add to the pressure for bans on first diesel, and ultimately gasoline private vehicles in major city centres worldwide, and could further reduce the interest in cars and driving in general in some sections of the population.