Asian refineries face critical winter season
Asian refineries face critical winter season
SINGAPORE (Reuters): Singapore refiners, entering the most
critical winter season for years, are braced for more bearish
news in the wake of the regional economic crash, analysts and
industry sources said.
The twin prospects of a mild winter and an economic slowdown
in Southeast Asia are expected to result in lower demand for oil
products during what is normally the peak demand season, they
said.
The fourth and first quarters are traditionally the most
profitable period for oil companies because of rising demand for
heating oil, such as diesel, kerosene and fuel oil, from the
northern hemisphere.
But this year South Korea, Japan and China are slowing imports
because of bigger domestic refining capacity, high stocks and
expectations for below average temperatures.
"The market is headed for an unusually warm northern
hemisphere winter on the back of El Nino," said James Brown,
analyst at Merrill Lynch, referring to the unusual weather
pattern.
As a result all these factors, Brown said Merrill Lynch had
cut its 1997 growth forecast for oil product consumption in the
Asia-Pacific region by 100,000 barrel-per-day (bpd) to 700,000-
bpd.
Asia-Pacific demand for 1997 was estimated at 18.45 million
bpd before the revision, compared to a regional refining capacity
of 18.1 million bpd.
However, Brown said the fallout in the oil sector from the
economic chaos in Southeast Asia will be limited by the economies
of the really big consumers--China, India and Japan--which have
been relatively unscathed from the turmoil.
"India, China and Japan are the engine for Asian growth and I
do not see a downturn for these countries," he said.
"The downturn is affecting the ASEAN nations, and is not going
to have huge effect on regional demand."
Analysts East-West Center based in Hawaii said at worst, the
economic turmoil could reduce oil product demand growth to 3.1
percent. At best, it would reduce growth to 3.9 percent from a
previous forecast of 4 percent.
The Association of Southeast Asian Nations (ASEAN) groups ten
southeast Asian countries including Thailand, Philippines,
Malaysia and Indonesia, which have been badly affected by a
currency and equity crisis.
The industry will watch Singapore's 1.3 million-bpd refinery
sector for signs of how the oil market is coping with a mild
winter and economic slowdown.
The Singapore refining sector relies on exports to keep going
and so makes an excellent barometer for the state of the regional
refining business.
In the third quarter, the island's four refineries saw profit
margins for basic refining range between a loss of 50 cents and a
profit of 50 cents per barrel -- levels considered too low to
support future investment.
But analysts said they estimated margins were at the lower end
of the range, or below, through the third quarter because
refineries were selling kerosene and gas oil at huge price
discounts to entice buyers.
In addition, the refiners were forced to cut output between
five and 20 percent on at least three separate occasions in 1997
to improve economics.
Currently, Shell Singapore is operating its 435,000-bpd
refinery about 15,000-bpd below capacity.
The prolonged down turn in prices has forced refineries to
review operations and trim any fat.
Last week, Shell Singapore said it would cut refinery staff 25
percent in the next few years.
In January, Caltex Petroleum Corp, equally owned by Texaco Inc
Chevron Corp said it was cutting staff in Singapore 15 percent.