Asian oil demand to hit record
singapore — Asian oil demand will hit a record in April just as global crude values are lifted to levels not seen in three years by Middle East supply risks and top exporter Saudi Arabia withholding output and pushing for prices at $80 to $100 per barrel.
Most analysts have pointed to escalating Middle East conflicts, a crisis in Venezuela, and the supply cuts of Saudi Arabia and other producers as the main drivers taking global benchmark Brent and US West Texas Intermediate crude futures this week to their highest since late 2014 at almost $75 and $70 a barrel, respectively.
Yet a much more fundamental reason has also sparked oil’s bull run: Asian demand, which Goldman Sachs said this week points to an average price of $80 a barrel in 2018.
“Rising tensions in the Middle East have likely played a role in oil price strength, but we believe a tight physical market is the key driver,” US investment bank Jefferies said on Friday in a note to clients.
Trade data in Thomson Reuters Eikon shows seaborne imports of crude oil by Asia’s main buyers will hit a record this month, a big portion going to slake China’s voracious thirst.
By end-April, China will likely have taken in more than 9 million barrels per day (bpd) of crude, its most ever. That’s nearly 10 per cent of global consumption and more than a third of Asia’s overall demand. At $75 a barrel, it implies monthly import costs for China of more than $20 billion.
The record comes despite maintenance season, which usually dents imports at this time of year, and indicates that China’s oil requirement is bigger than expected.
“Chinese demand points to strong growth,” said US bank Goldman Sachs in a note to clients, adding that it may be “higher than currently estimated”.
Michal Meidan of consultancy Energy Aspects said Chinese buyers were re-stocking after running down inventories late last year.
Much of China’s new demand also comes from the advent of non-state refiners — often called teapots — as crude importers, resulting in record refining throughput.“A number of teapots are starting new Crude Distillation Unites (CDUs) and secondary units, pulling in more crude,” Meidan said, adding that there may also be some purchases of Strategic Petroleum Reserves (SPRs).
Beyond re-stocking and teapots, analysts said China’s economic performance has also been stronger than expected.
Suresh Sivanandam of energy consultancy Wood Mackenzie said he expected China’s overall oil demand to grow by 370,000 bpd this year to 12.78 million bpd.
Adding in other regions, Goldman said global oil demand in the first quarter of 2018 is likely to post the strongest year-onyear growth since the last quarter of 2010.
A tighter market is also showing up in rising costs for crude deliveries to Asia as Middle East producers raise their official selling prices (OSPs). — Reuters