Asia: "Oil demand will be back to pre-crisis levels in 2001 or perhaps 2000 if the regional economies stage a strong recovery".
Asian oil more settled, but still faces test in 99
Reuters World News Service, SINGAPORE, May 31
Key Asian oil industry players gathering
in the Malaysian capital this week are
unlikely to be popping champagne corks
despite a remarkable recovery in prices.
Crude oil prices, which last year sank to their
lowest annual average in more than 20
years, have risen some 60 percent from their
lowest point in December following a global
producer pact in March to cut production for
the third time.
The price gain, however, is a mixed blessing
for the oil industry, meeting in Kuala Lumpur
this week for the Asia Oil & Gas Conference,
which is backed by state oil firm Petronas.
"The greatest challenge facing the industry is
to achieve a level of price which would
sustain the industry," Petronas Chairman
Azizan Zainul Abidin said at the opening of
the conference on Monday.
The refining and marketing side of the
business have yet to reap much of the price
gain because of downstream capacity builds
and patchy demand growth in Asia, but the
upstream sector is getting better returns.
"The downstream industry is driven by the
supply dynamics with new capacities coming
onstream. Eventually increased demand
would have a role play...at the moment I
don't see that as having a material or
favourable impact," energy analyst at Merrill
Lynch, James Brown said.
Brown forecast that demand would be back
to pre-crisis 1997 levels in 2001 or perhaps
2000 if the regional economies stage a
strong recovery.
"We need the Japan economy to turnaround,"
he said.
Even when demand recovers, profits would
still be squeezed because of the start-up of
two mammoth refineries in India and Taiwan.
India's Reliance Petroleum Ltd <RLPT.BO>
and Taiwan's Formosa Plastics group
<1301.T> alone would add in stages from
now to next September one million barrels
per day of new refining capacity.
As a result, the average refinery operating
rates in Asia is expected to hover around 85
percent in the next two years, oil industry
sources estimated.
A U.S.-based oil and chemical consultant
said rates at export-oriented Singapore could
sink to below 80 percent as result of these
new capacities.
"We could see some rationalisation in
Singapore, in light of the Exxon/Mobil
merger," Brown said.
Numerous other smaller refineries will also
come on stream over the next one-year
period in India, turning the giant Asian
consumer into an exporter of selected
petroleum products.
Oil traders said this had already forced many
conservative Middle East state-oil companies
to re-focus their business and strike out on
their own.
"We are seeing for the first time NIOC
(National Iranian Oil Co) and Saudi Aramco
participate directly in the Indian tenders to
buy gas oil and kerosene, " one senior Middle
East trader said.
"They are anxious like everybody else and
don't want the traders to take all the
profits."
State monoliths were also studying new
trading instruments such as swaps and
futures to hedge earnings, they said.
In the months ahead, the New York
Mercantile Exchange plans to launch its
Middle East crude futures contract, adopting
Dubai and Oman as its underlying crudes.
Futures contracts have been a failure in Asia
during the past 10 years, so the NYMEX
launch will be a test of how the market is
growing and diversifying.
Traders said the Kuala Lumpur meeting
offered the nervous refiners an opportunity
to meet potential Asian customers who until
now have been serviced by trading
companies.
The higher oil prices, however, are now
slowly allowing the major players to look
again at fresh prospecting.
Oil producers in the region such as Indonesia,
Asia's only member of the Organisation of
Petroleum Exporting Countries, Malaysia,
Brunei and China are enjoying an
unexpectedly large bonus to state coffers.
Indonesia, starved of hard currency, has
seen its benchmark Minas crude soar above
$16.29 per barrel, the highest official level
since 1997, compared to a government
budget price of $10.50.
Similarly, Malaysia's benchmark Tapis crude
has risen to $16.89 per barrel compared with
the official forecast of $12, also the highest
official price since 1997. |
