This is the fourth edition of our Asia Pacific Quarterly which provides detailed analysis of Asian crude and product markets. The quarterly covers the economic and political trends shaping demand and supply patterns in the region. It draws on our wealth of expertise in global oil and products markets as well as on the region, ranging from Northeast Asia to South Asia. Each quarter, focus pieces delve into key issues that will impact the market in the near and medium term.
In this edition:
- In Focus: India’s controversial demonetisation policy is wreaking havoc in the economy and has led us to trim our outlook for oil demand growth this year from 0.4 mb/d y/y, to a still robust 0.3 mb/d. China will focus on growth support through infrastructure lending as it seeks stability ahead of a critical leadership transition in the autumn, suggesting that oil demand will rise by around 0.3 mb/d y/y. But mismanagement of the demonetisation process could weigh heavily on Indian demand growth, while Chinese efforts to sustain growth could be undermined by high debt levels, soaring pollution and a challenging relationship with the US.
- In Focus: China’s Belt and Road initiative, an ambitious infrastructure spending gambit spanning 61 countries from Southeast Asia, Central Asia and through to Europe, will boost Asian diesel demand in the years ahead. In this piece, we analyse the initiative and the various financing mechanisms that will support infrastructure development throughout the Eurasian continent. This is set to boost Asian diesel demand growth to 0.18 mb/d this year, and by over 0.20 mb/d every year through 2020. In the medium-term, it will also lay the foundations for stronger demand growth for gasoline and petchems from wealthier populations.
- Macroeconomic outlook: Rapid economic growth in Emerging Asia will buoy oil demand, combined with an emphasis on fiscal policy, but the rising prospect of trade wars is worrying, and with it comes a downside risk to our forecast for 0.9 mb/d of oil demand growth for the region in 2017, as Asia is particularly trade-dependent.
- Outlook for oil products: Asian refiners will not only have to contend with an uncertain outlook for demand, but also with a plethora of spec changes that are sweeping the region. We discuss these and their implications for naphtha and reformate imports, as well as for gasoline and diesel outflows from the region.
- Outlook for crude: Asia will be net short around 21.3 mb/d of crude, higher y/y by 0.9 mb/d in 2017. This is driven by a decline in regional production, a substantial 0.7 mb/d rise in refinery runs as well as roughly 0.2 mb/d of SPR buying. Yet with OPEC cuts leading to a scramble for sour grades, inventories will start to draw and Asia will start bidding up Atlantic Basin crude.
The Asia Pacific Quarterly also provides a unique and comprehensive overview of developments in the downstream and their implications for crude and product trade flows, SPR builds, refinery runs and yields, as well as the outlook for the region’s crude oil production.