This is the sixth 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 – Asian gasoline demand: Asia is the world’s second largest gasoline consumer after the US, and thanks to rising incomes and motorisation levels, the region will remain a key driver of global demand. When looking at income elasticity of car ownership alongside GDP and population, however, our model suggests that car ownership in Asia is likely to plateau at lower levels than in OECD countries, and with ambitious policies to introduce electric cars into their fleets, combined with more stringent fuel economy standards, China and India are set to displace an annual average of 0.20-0.25 mb/d of gasoline demand by 2020. Asian gasoline demand growth is therefore set to average around 3-4%, instead of the 5-6% seen in the last decade.
- In Focus – Pakistan’s oil outlook: After a tumultuous decade, Pakistan turned a corner in 2013. Economic growth, underpinned by stability and massive Chinese investments in a network of transport, pipelines and other infrastructure development projects, have supported strong oil consumption. Demand growth has taken off, led by fuel oil, diesel and gasoline, but after a stellar year in 2017, demand growth will slow, as fuel oil—the product that has thus far underpinned Pakistan’s demand growth—will be displaced by new coal, gas and renewable power generation capacity. Diesel and gasoline demand growth will rise, and with it, Pakistan’s needs for clean products imports.
- Macroeconomic outlook: 1 July marked the official start of the Goods and Services Tax (GST) in India, with its roll out set to benefit the economy by streamlining the notoriously slow and bureaucratic movement of goods between Indian states. The speed with which the GST will boost the economy will depend on implementation. Thus far, the roll out of the GST seems to have been largely smooth, suggesting a potential upside to our 2018 oil demand growth forecasts of 0.29 mb/d, especially for diesel—which will benefit from higher road freight.
- Outlook for oil products: The IMO’s decision (under the MARPOL convention) to transition to low-sulphur marine fuels in 2020 is set to boost medium-term diesel demand in Asia and transform the region from its huge net short position in fuel oil into a net long in 2020. Most refiners will be able to run harder, with the exception of Japan, and even then, Asia will need to price strongly to retain diesel produced in the region and attract diesel barrels from India and the Middle East, just as the excess HSFO Asia is currently absorbing will need a new home.
- Outlook for crude: Asia’s crude buying is slowly resuming after a lull since late April. Armed with additional import licences, China’s independent refiners are going barrel hunting again. But as China overbought by an estimated 0.30-0.35 mb/d of crude in H1 17, and refinery works in the region come in higher than expected, Asia’s net crude short, while still sizeable at 21 mb/d in H2 17, will be below the 21.34 mb/d seen in H1 17.
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.