Singapore oil refiners see tough times ahead

Singapore oil refiners see tough times ahead

SINGAPORE (Reuters): A decision by industry leader Shell Singapore to deepen production cuts in April despite surging oil prices was indicative of tough times ahead, analysts and oil traders said on Monday.

Crude soared last week to a one-year high after global producers agreed to cut output. But the rally did not necessarily support Asian refineries, and other uncertainties were developing for the rest of the year.

"This will not be an easy year for the industry," said Merrill Lynch energy analyst James Brown, who said he expected profit margins to be depressed in 1999 on poor demand.

Brown forecast near flat growth for Asian oil product demand in 1999, compared with a 2.8-percent contraction in 1998 from the year earlier.

"This (price rally) represents the latest threat to the industry...it is going to push up petroleum product prices at the petrol pump and generally be treated negatively by consumers," Brown said.

The combined effect of flat demand and higher oil prices on the swing refiners in Singapore -- which counterbalance Asia's demand and supply -- would be to cut into operating rates.

"In the second half of 1999, Singapore refiners would do very well to hold runs above 82 percent on average. It's quite possible to average 78 percent," a Singapore-based U.S. oil and petrochemical consultant said.

The consultant said crude run rates are currently at about 85 percent of the 1.25 million barrel per day (bpd) capacity.

On Monday, Shell said that output at its 59,000 ton-per-day (tpd) or 420,000-bpd refinery would be reduced to 66 percent of capacity, a cut of up to 4,000-tpd from March.

"Shell will run the Pulau Bukom refinery crude distillers for the month of April at 39,000 tpd given current and expected market conditions," the company said in a statement.

Oil experts said Shell appeared to be taking the view that the current surge in oil prices and demand would not necessarily last in Asia.