Asian oil demand to hit record, but industry can't take
eyes off Middle East
Send a link to a friend
[April 20, 2018]
By Henning Gloystein
SINGAPORE (Reuters) - Asian oil demand will
hit a record in April just as global crude values are lifted to levels
not seen in three years by Middle East supply risks and top exporter
Saudi Arabia withholding output and noisily pushing for prices at $80 to
$100 per barrel.
Most analysts have pointed to escalating Middle East conflicts, a crisis
in Venezuela, and the supply cuts of Saudi Arabia and other producers as
the main drivers taking global benchmark Brent <LCOc1> and U.S. West
Texas Intermediate <CLc1> crude futures this week to their highest since
late 2014 at almost $75 and $70 a barrel, respectively.
Yet a much more fundamental reason has also sparked oil's bull run:
Asian demand, which Goldman Sachs said this week points to an average
price of $80 a barrel in 2018.
"Rising tensions in the Middle East have likely played a role in oil
price strength, but we believe a tight physical market is the key
driver," U.S. investment bank Jefferies said on Friday in a note to
clients.
Trade data in Thomson Reuters Eikon shows seaborne imports of crude oil
by Asia's main buyers will hit a record this month, a big portion going
to slake China's voracious thirst.
For graphic on Asia crude oil demand click
https://reut.rs/2K2V89x

By end-April, China will likely have taken in more than 9 million
barrels per day (bpd) of crude, its most ever. That's nearly 10 percent
of global consumption and more than a third of Asia's overall demand. At
$75 a barrel, it implies monthly import costs for China of more than $20
billion.
The record comes despite maintenance season, which usually dents imports
at this time of year, and indicates that China's oil requirement is
bigger than expected.
"Chinese demand points to strong growth," said U.S. bank Goldman Sachs
in a note to clients, adding that it may be "higher than currently
estimated".
RE-STOCKING, TEAPOTS, RESERVES
Michal Meidan of consultancy Energy Aspects said Chinese buyers were
re-stocking after running down inventories late last year.
Much of China's new demand also comes from the advent of non-state
refiners - often called teapots - as crude importers, resulting in
record refining throughput.
"A number of teapots are starting new Crude Distillation Unites (CDUs)
and secondary units, pulling in more crude," Meidan said, adding that
there may also be some purchases of Strategic Petroleum Reserves (SPRs).
Beyond re-stocking and teapots, analysts said China's economic
performance has also been stronger than expected.
For graphic on Singapore refinery margins click https://reut.rs/2HdlpjO
[to top of second column] |

"Chinese growth of 6.8 percent in Q1 is higher than its target of 6.5 percent
for the year. The supportive growth environment in China is one key reason for a
supported oil demand story in general," said Barnabas Gan, analyst at
Singapore's OCBC Bank.
Suresh Sivanandam of energy consultancy Wood Mackenzie said he expected China's
overall oil demand to grow by 370,000 bpd this year to 12.78 million bpd.
Adding in other regions, Goldman said global oil demand in the first quarter of
2018 is likely to post the strongest year-on-year growth since the last quarter
of 2010.

A tighter market is also showing up in rising costs for crude deliveries to Asia
as Middle East producers raise their official selling prices (OSPs).
The OSPs for Abu Dhabi's Murban and Saudi Arabia's Light crudes are currently
showing their highest premiums to Dubai since 2014.
DARK CLOUDS?
With demand growing all around, some analysts say there is little reason to
expect anything but further price increases.
Standard Chartered Bank said this week there were "no bears left in this oil
town".
So far, refineries in Asia are still operating at high levels to meet strong
demand, despite rising crude feedstock prices eating into profit margins.
"Refiners are not likely to reduce imports or trim down run rates despite the
price increase," said Lee Dal-seok, senior research fellow at state-run think
tank Korea Energy Economics Institute.
Still, some dark clouds loom.
China's Sinopec <600028.SS>, Asia's largest refiner, plans deep cuts to its May
crude imports as its biggest refinery - the 460,000 bpd Zhenhai Refining and
Chemical Company - goes into major overhaul.
Several traders said more such outages are due in May and June, likely reducing
China's crude imports in coming months.
The International Monetary Fund (IMF) this week also released its World Economic
Outlook in which it warned that rising U.S.-China trade restrictions threatened
global growth.
"The prospect of trade restrictions and counter-restrictions threatens to ...
derail growth prematurely," said IMF Chief Economist Maurice Obstfeld.
Goldman Sachs does not share the IMF's concerns.
Worries about "trade wars and fears that higher oil prices will start to weigh
on demand growth ... are overdone," it said.
(Reporting by Henning Gloystein, Florence Tan and Koustav Samanta in SINGAPORE,
Aizhu Chen in BEIJING, and Jane Chung in SEOUL; Editing by Tom Hogue)
[© 2018 Thomson Reuters. All rights
reserved.] Copyright 2018 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |