This is the seventh edition of our Asia Pacific Quarterly, which provides detailed analysis of Asian crude and product markets. It covers the economic and political trends shaping demand and supply patterns in the region and draws on our wealth of expertise in global oil and products markets as well as on the region itself, 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 – China’s crude buying: China’s appetite for crude imports has been hovering around record levels all year. Incremental buying has far exceeded the increase in refining runs and end-product demand growth, as well as the apparent nameplate capacity of new SPR and commercial tanks. In this focus piece, we unpack China’s crude buying—the pull from the teapots and new refining additions, linefill for new infrastructure, accounting quirks, as well as one-off stockpiling in 2017 that we expect will reach 180 mb. But, as some of the teapot binge buying comes to an end and less storage is added, China’s net crude short—and by extension imports—will grow at a slower pace in 2018.
- In Focus – Vietnam’s crude and products outlook: Vietnam’s oil demand growth, which has been slowing y/y in 2017 on a high base, is set to expand by an average 7% from 2018 to 2020, led by diesel and gasoline. These structural trends in Vietnam’s growth and oil use patterns are unlikely to change, but the start-up of the country’s second refinery, the 0.20 mb/d Nghi Son will alter crude and product flows into the country. In 2018, Vietnam will shift from being 0.11 mb/d net long crude to being short crude by 0.10 mb/d, but it will also require less product imports, thereby intensifying competition to supply Asia’s shrinking Euro-III market.
- Macroeconomic outlook: The 19th Chinese Communist Party Congress, which convened in Beijing in October, will go down in history as one of the most significant in decades. With the dawn of the ‘Xi Jinping era’, China will gradually allow economic growth to moderate, leading in turn to a slowdown in oil demand growth. Xi’s key policies, such as efforts to phase out overcapacity in heavy industry, will increasingly focus on refining and chemicals. And Xi’s commitment to a strong state-owned sector suggests that oil and gas companies will become more influential, likely at the expense of the independent refiners.
- Outlook for oil products: In H1 17, refining margins managed to stay strong across the barrel due to a lack of spare refining capacity outside of China, combined with robust demand growth. In H2 17, however, as new capacity starts up, runs will rise sequentially, putting some pressure on refining margins and weighing on gasoil and naphtha East-West spreads. Nevertheless, in 2018, we expect refining additions to total 0.71 mb/d, falling short of demand growth, so until the next wave of Chinese capacity additions in 2019, margins should remain well supported.
- Outlook for crude: Three years of low oil prices have all but dried up investments in mature Asian oil fields in China, Malaysia and Indonesia, leading to an uptick in decline rates. At the same time, gas production has increased as producers counted on a seemingly insatiable appetite for LNG in Asia. And as producers are currently shying away from long-cycle oil projects, oil production will remain side-lined in company portfolios.
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.