After years of soaring growth, Asia’s fuel demand falters
SINGAPORE: After years of often explosive growth, fuel consumption in Asia’s biggest economies is stuttering, undermining efforts led by the Organisation of the Petroleum Exporting Countries (Opec) to end a global supply glut and lift prices.
Gobbling up over a third of global supplies, Asia is the world’s biggest and fastest growing region for oil consumption, and its seemingly insatiable fuel thirst has long been a core support for prices.
Now, some 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 in Dubai. “Considering the sheer volume of product available… sooner or later I think we could see some distressed sellers.”
Brent crude oil futures have risen by around 5.5% this month to US$55.75 per barrel as traders bet on a broader commodity market recovery and price in a Middle East risk premium after the US missile attack on Syria last week.
But in a sign that there remains an abundance of oil available to buyers and that the more opaque physical oil market is not as convinced by the rally in financial markets, top exporter Saudi Arabia this month lowered the price for its May crude for Asian customers by 30 US cents versus April, and to a discount of 45 US cents compared with the benchmark Oman/Dubai average.
It is showing up in various parts of the region’s economy.
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 that almost wiped out imports altogether.
Even India, which is often touted as the next driver of global demand growth, fuel consumption fell 0.6% in March from a year earlier.
Consumption in other major Asian oil buyers is in terminal decline.
Japan’s oil demand is expected to fall by more than 1.5% 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% in January-February from a year earlier, according to data from Korea National Oil Corp.
Goldman Sachs said in a note to clients on Wednesday that its long-term forecast for benchmark US crude is US$50 per barrel versus the current price of US$53.08 per barrel.
Data from Thomson Reuters Eikon 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.
Still, lots of fuel remains stored on tankers 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 figure 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 , the international benchmark for oil prices, shows only a slight increase of 90 US cents in prices between now and a peak in November, at US$57.20 per barrel.
“That’s not enough to make it profitable to store oil on tankers,” one ship broker said on condition of anonymity.
What’s worse, Brent prices start falling from November onward, back towards US$56 a barrel for delivery towards 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. – Reuters