Asian oil demand rally seen beginning in 1999

Asian oil demand rally seen beginning in 1999

LONDON (Reuters): Battered Asian oil demand will start a slow recovery next year but could still fall just short of the pre- financial crisis levels of 1997, a Reuters survey of analysts found.

The poll of eight industry experts found that this year's unprecedented downtrend would give way to mild gains in 1999 and 2000 but nothing like the growth of previous years.

An average of the eight forecast Asian oil demand at 19.65 million barrels a day (bpd) in 1999 from 19.33 million bpd this year, reversing most of the 2 percent decline from 19.71 million in 1997.

Before this year's financial crisis the region, worth about a quarter of world demand, had contributed nearly 50 percent of annual global growth in crude demand.

Analysts said economies hard hit by plunging currencies will find the road to recovery a steep upward struggle with demand in North Asia which accounts for nearly half of Asia Pacific demand, likely to contract by about 10 percent this year.

"Asia is stuck in a structural economic crisis and the prospect is very worrying with Japan, Asia largest consumer still in recession and China's current restructuring, " said Gundi Royle, director of oil and gas research at Deutsche Morgan Grenfell in London.

"For the oil market, Asia was the engine that drives world oil demand up because it constitutes half of world oil growth," said Irene King at JP Morgan in New York who also projected a modest upturn next year.

"1999 will not be a return to the glory days before the crisis but things should look slightly better," she said.

Paul Cheng, an analyst at Lehman Brothers in New York saw Asian oil demand hitting a floor in the first quarter of next year and picking up only in the fourth quarter.

"Under normal weather conditions, demand should pick up in the last quarter of the year. Economic growth for the rest of Asia is likely to be flat between 1998 and 1999. China and India will probably grow about five percent in the same period," he said.

"By the year 2000 or even late 1999, the Asian economy should rebound and we should see stronger growth," he added.

Asia's fall in oil demand has been cushioned this year by cheaper prices, analysts said.

"Consumption was not curtailed as much as it would have been as oil has become cheaper at least in the first six months of this year," said John Toalster at Societe Generale in London.

Asian currencies, excluding China have fallen by an average of 34 percent since last July with the Indonesian rupiah leading the losers, down 77 percent. Thailand's Baht has fallen by almost 34 percent followed by the South Korean won which has dumped 39.percent.

Asian GDP without China has contracted by an average of 3.75 percent with Malaysia, Indonesia, South Korea, Philippines, Thailand, Hong Kong and Japan registering negative growth, according to a recent Reuters market survey.

But Asian refiners lost purchasing power on the dollar- denominated oil market has partly been compensated for by the slide in world oil prices.

Benchmark Brent blend crude has averaged less than US$14 a barrel so far this year compared to $19.30 in 1997.