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Asian oil markets little to offer any upside potential
Riyadh, 4th Apr 2001

  Asian oil markets, already suffering from ample supply, are unlikely to have much to cheer in the next few months as the region heads into the traditionally weak second quarter, traders said yesterday. Prices for refined products - naphtha, gasoline, kerosene, gas oil and fuel oil - held steady at lower levels or softened in March and there appears little to offer any upside potential, they said.

Asian refiners will most probably cut crude runs during the period, reducing the region's requirement for crude imports which also will be capped by a slew of refinery maintenance stoppages. "Oil prices are likely to retreat by five to 10 percent across the board over this quarter, unless we see more OPEC cuts before June," said Gordon Kwan at HSBC Securities in Hong Kong.

"Between now and then, it is difficult to see prices going up in light of slowing demand in Asia because of the economic problems in the United States." Across the region, Asian currencies have also showed a weakening tendency against the U.S. dollar, another factor which could dampen demand for imports from the region. Asian crude buyers appear to have easily absorbed the latest round of output cuts by the Organization of the Petroleum Exporting Countries.

Opec's one million barrel per day (bpd) cut came into effect on April 1, bringing its total reduction on paper to 2.5 million bpd so far this year. Leading Opec sellers Saudi Arabia and Kuwait informed Asian term customers liftings would be 13 to 15 percent lower versus standard contract volumes from April.

There was little short-cover buying from refiners following the cuts. "This matches our lower demand due to maintenance shutdown plans for our refinery," one Asian refiner said. About two million barrels per day of crude distillation capacity in major consumers such as Japan, South Korea and China are due to go into turnaround in the second quarter with stoppages ranging between two weeks and one month.

In Singapore, Asia's major swing refining centre, Shell announced earlier this week a 22 per cent cut to crude throughput at the Bukom refinery taking operating rates down to less than 50 percent of the 430,000 bpd nameplate capacity. Spot crude demand in Asia already was on the wane with crudes from Oman, Qatar and Abu Dhabi trading mostly at small discounts to official selling prices for May loading.

Traders said direction appeared to be downhill for June with expectations of a flood of arbitrage supplies from West Africa. Over one million bpd of African crudes have been committed to lift in April and will hit Asian shores by late May onwards. Asian oil products, except for fuel oil, are expected to struggle to hold current levels in the next few months, with supplies remaining abundant despite lower refinery run rates.

South Korean refiners, Singapore's main export competitors, are planning to boost crude throughput by about two percent in April to gear up for May maintenance shutdowns. Traders said gas oil, Asia's major oil products market, was likely to remain under current bearish pressure amid plentiful supplies and a downturn in demand at the end of the northern hemisphere winter.

Singapore gas oil prices touched $25.55 a barrel in mid-March, the lowest level in almost a year. Key importer Indonesia may lift purchases slightly after apparently failing to renew a 90,000 bpd crude processing deal with Shell Singapore. But traders said volumes were unlikely to be significant. Other gas oil buyers such as Vietnam and Sri Lanka would probably only show regular demand, they said.

Asian jet fuel and gasoline could get some support from export arbitrage windows to the U.S. West Coast, although sales into the United States were only intermittent last month with Korean and Singapore refiners selling jet fuel and China gasoline for blending components. Only fuel oil is expected to see sustained demand in the short term, traders said.

Main importer China, which uses fuel oil to burn in power plants, has exhausted South Korean supplies for April and is looking to Europe, the Middle East, Singapore and Russia to plug shortfalls in its requirements. Traders said the fuel oil market might see reduced supplies in the second quarter from the Middle East, where domestic demand rises on higher power consumption for air conditioning.

Source: Gulf News

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04 April 2001 03:33:14 PM

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