Asia’s fuel demand stubmbles, after years of soaring growth

ASIA

 

The explosive growth of fuel consumption in Asia, is taking a downwards trend. Fuel consumption in Asia’s biggest economies is plummeting under the OPEC’s decision to end a global supply glut and lift prices.

 

First of all, Asia takes third place over the global supplies. Asia Is the worlds fastest growing region in oil consumption. Surely the insatiable fuel thirst has long been a core support for prices.

Yet some resources say that picture of buoyant growth in demand is crumbling.

“The signs of growing demand aren’t quite what they seem. Chinese fuel growth is at a three year low, Japanese fuel demand is down,” said Matt Stanley, a fuel broker at Freight Investor Services (FIS) in Dubai. “Considering the sheer volume of product available… sooner or later I think we could see some distressed sellers.”

http://www.nasdaq.com/markets/crude-oil-brent.aspx

Speaking about Brent Crude Oil, futures have risen by 5.5% this month to 55.75$ per barrel. As traders bet on a broader commodity market , risk is present. And there are also Middle East risk premium after the U.S. missile attack on Syria last week.

Top exporter Saudi Arabia this month lowered the price for its May. Crude for Asian customers by 30 cents versus Apri. And to a discount of 45 cents compared with the benchmark Oman/Dubai average. There remains an abundance of oil available to buyers. In conclusion, that abundance is more opaque& physical oil market is not as convinced by the rally in financial markets.

 

CHINA AND INDIA GASOLINE EXPORTS

 

China’s gasoline exports in February climbed to their second-highest monthly level on record. As refiners increasingly turned to exports to Asian markets to drain a domestic supply glut. A glut that almost wiped out imports altogether.

In India also, which is not rarely considered as the next driver of global demand growth, fuel consumption fell 0.6%. In comparison with March from a year earlier.

“The stutter in Indian demand may have been caused due to the effects of demonetization,” said Sukrit Vijayakar, director of energy consultancy Trifecta.

 

Especially relevant, India abolished existing 500 and 1000 rupee notes last year, which made up the mush of the country’s cash in circulation.

India’s annual fuel demand is still expected to grow this year. But it is unlikely to recover enough to fully offset the demonetization impact.

K.Surana, chairman of Hindustan Petroleum Corp, said: “I expect India’s fuel demand to rise by 5.5 to 6 percent this year.” Though that is still a high growth rate by global standards, it is a far cry from 2016’s refined product demand growth of more than 10.9 percent.

 

POPULATION FALLING

Analysing the other major Asian oil buyers, their terminal also declines. For example South Korea and Japan face major demographic problems. Low birth rates, and an aging population. A Japaneese government agency predicted that before 2065 population will fall by nearly a third.

Improving fuel efficiency and the long-term picture for oil producers trying to sell to Japan, appears to be bleak.

“Because of structural factors such as the improvement of vehicle fuel economy, domestic demand has been weakening… and that is continuing.”

Japan’s oil demand is expected to fall by more than 1.5 percent per year on average over the next five years, forecasts by the government’s energy committee show.

In South Korea, oil products demand fell by 0.4 percent in January-February from a year earlier, according to data from Korea National Oil Corp.

“This year’s overall domestic oil products demand growth is expected to slow,” said Lee Seung-moon, a research fellow at the state-run Korea Energy Economic Institute.

The longer-term trend in South Korea is similar to that in Japan. Aging population, rising efficiency, and alternative fuels are making a fuel market fuss.

 

IS THERE AN END TO GLUT?

In the beginning, Goldman Sachs wrote in a note to clients on Wednesday that its long-term forecast for benchmark U.S. crude is $50 per barrel versus the current price of $53.08 per barrel.

Other data shows that global oil supplies on average exceeded demand by 680,000 bpd in 2016. And that 2017 will still see oversupply, albeit of less than 100,000 bpd, excluding stored oil.

Lots of fuel remains stored on tankers. Which are in Asia’s oil trading hub around Singapore. Eikon data shows that around 20 supertankers are currently sitting offshore Singapore and southern Malaysia, filled with oil.

While this is slightly lower than a month ago, it is a sign of continuing oversupply.

Keeping oil on tankers is only profitable if fuel prices for future delivery are significantly higher than those for imminent discharge.

Yet the forward price curve for Brent crude futures, shows only a slight increase of 90 cents in prices between now and a peak in November, at $57.20 per barrel.

“That’s not enough to make it profitable to store oil on tankers..” said an anonymous ship broker.

What’s worse, Brent prices start falling from November onward, back toward $56 a barrel for delivery toward the end of 2018 and into 2019.

Such a price curve, “makes it commercial suicide to store oil on tankers, so the only reason to do that is if you have nowhere else to put it,” the broker added.

 

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