Asia’s Oil Demand Faces Growing Headwinds, Refiners Adopt Cautious Stance
Asia’s oil demand is facing increasing headwinds, as clean product inventories rise in Singapore and Malaysia, whilst petrochemical feedstocks demand is under threat from softening margins.
The growing influx of clean products into storage facilities in Singapore and Malaysia, coupled with declining exports, is increasingly weighing on the region’s product cracks. In July, combined gasoline/blending component arrivals into these two countries were up nearly 10% month-on-month, whilst diesel/gasoil imports rose 30% during the same period. Exports from both countries, on the contrary, were down 16% and 20% for the two products respectively, led by lower volumes to Indonesia, Australia and Myanmar, among others. With the restart of Indonesia’s Balikpapan refinery CDU No. 4 (Reuters) and Australia’s minimum stock obligation regulation deadline materialising last month, both countries’ clean product imports could see a slowdown this month. Beyond these immediate factors, a broader, more structural slowdown in the region’s oil demand could be brewing.
Singapore and Malaysia’s gasoline/blending components and diesel/gasoil net exports (kbd)
The prolonged closure of the east-west jet/kero and diesel/gasoil arbitrage has further exacerbated the situation. Excluding exports from India, Asia’s clean product exports to destinations outside the region in the first three weeks of July have contracted to their lowest levels since June 2023. Strong exports from the US, Middle East, and India to Europe and Africa, partly on cleaned-up VLCCs and therefore shifting economies of scale, have significantly diminished arbitrage opportunities for Asian exporters.
Petrochemical feedstock imports up but dark clouds loom
Improved PDH margins and the start-up of new PDH plants in China have driven up LPG arrivals into Asia in recent months, with July’s volumes reaching the third-highest monthly total since 2019. Four new PDH plants in China with a combined capacity of 2.8 MTPA commenced operations in the first half of 2024. However, the margin improvements have been short-lived as propylene domestic demand in China slows, impacted by polypropylene units entering maintenance, while other producers have shut their plants due to poor margins.
Naphtha arrivals into Asia have increased for the second consecutive month, partially supported by healthy aromatics margins. Nonetheless, demand from ethylene crackers remains weak, affected by both planned and unplanned maintenance at facilities in Japan and South Korea. Additionally, market participants have reported ullage issues in South Korea, dampening its appetite for naphtha imports.
Amidst deteriorating market conditions, Asian refiners have scaled back crude purchases, with crude loadings to the region in July falling to a two-year low of 21.5mbd. The region’s onshore crude inventories have increased for the fourth consecutive month, reaching 1.55 billion barrels at the end of July, further signalling refiners easing refinery runs in the coming months. Despite rising geopolitical tensions in the Middle East, oil prices have continued to cool in the recent weeks blanketed by bearish oil demand optics.
