This is the eighth 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 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 – Asia’s oil demand outlook: Asia is set for another year of strong oil demand growth, accounting for an estimated 1.1 mb/d out of 1.7 mb/d of incremental global demand. But the Asian oil order is changing compared to 2017, when China surprised to the upside and Indian demand struggled. This year, India is set to recover strongly as the government boosts infrastructure spending ahead of the 2019 general election.
- In Focus – China-Russia pipelines: The second spur of the China-Russia pipeline, ESPO II, started up on 1 January 2018, allowing Russian flows to China to double to 0.60 mb/d. The tumultuous history of ESPO suggests that flows may take time to ramp up to the full 0.30 mb/d and that pricing disputes may be in the offing. But despite potential hiccups, flows from Russia to China will inevitably increase, reducing the availability of westbound Urals. This will support Forties and lead to a wider Brent-Dubai spread, at least through H1 18.
- Macroeconomic outlook: The global oil rebalance in 2017 was in large part due to a surge in demand, and while the OECD received most of the attention, Asia still accounted for the lion’s share of global oil demand growth. In 2018, Asia’s GDP growth is set to maintain its strength at 5.6%, with consumption and investment key drivers of the region’s economic expansion. External demand and trade will provide further support for Asian growth as many of Asia’s key trading partners are still seeing strong economic momentum. With Indian economic growth set to recover, and even OECD Asian growth holding up, the region is ready to carry the baton of global growth.
- Outlook for oil products: Asian markets have been fretting about an outflow of exports from China and India, but they are likely to see lower diesel exports from India and only limited growth in Chinese gasoline exports. And even if exports were to surge, regional demand growth is set to outstrip refinery runs in 2018, allowing Asia to absorb any incremental barrels. To be sure, the sharp rise in crude prices will compress refining margins on the whole, but they should still hold up thanks to solid demand.
- Outlook for crude: Chinese crude stocks are at record lows, but a fresh buying binge has yet to materialise. Just as products markets fear a deluge from China, crude markets fret that Chinese appetite for imports will dry up. But while Q1 18 will likely see limited increases in imports, crude buying in 2018 as a whole is set to rise y/y by 0.5 mb/d with an upside to that from the launch of the Shanghai futures contract in March and the potential start-up of new mega-refineries toward year-end.
The Asia Pacific Quarterly also provides a unique, 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 an outlook for the region’s crude oil production.