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©