This is the fifth 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: Indonesia holds great promise as Asia’s next big demand story, yet it has thus far failed to deliver the growth expected of it. Now, slowly but surely, underlying demand is picking up. In the medium term, with the government increasingly focusing on infrastructure spending, Indonesian oil demand growth is set to take off, just as domestic crude production is declining and refining capacity is rising. In this first focus piece, we analyse Indonesia’s demand potential, upstream prospects, and its refining outlook over the next five years.
- In Focus: China’s appetite for US crude seems insatiable. The expectation of tighter oil markets has resulted in panic buying in Asia, with the region pulling in crudes from all over the world, including record volumes from the US. In this second focus piece, we discuss the economic and political factors driving China’s interest in US crudes and assess whether it can soak up both the light and the medium grades the US has to offer.
- Macroeconomic outlook: Asia’s economic outlook is the brightest it has been in several years. Regional economies are performing well, as even India is starting to recover from the malaise of demonetisation. South Korea, however, is emerging as the outlier in Asia, as a deteriorating shipping industry, political instability, and geopolitical tensions with China start to weigh.
- Outlook for oil products: The robust economic backdrop is showing up in Asian products demand. In Q2 17, heavy refinery works are supporting Asian refining margins further, a trend that is set to continue through early Q3 17, with upside, in particular, to the forward distillate curve as heavy crude supplies support. Margin compression should begin in Q4 17, as the impact of the new refining units starting in Q3 17 will be felt three to six months later.
- Outlook for crude: As the OPEC cuts bite, China has gone looking for medium sour crudes, sourcing these mostly from Latin America and Africa. Heavy grades as a percentage of Angolan exports to Asia increased from 32% across both 2015/16 to 39% in Q1 17. Similarly, heavier barrels from Chad, Congo and Equatorial Guinea have also gone to China. A combination of loan repayments, Chinese equity investments in the African upstream, and Asia’s unquenchable thirst for medium sour crudes will keep African barrels flowing to Asia.
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.