Long-haul trades to gain from oil demand forecast

Apr 13 2017

In the recently released International Energy Agency (IEA) medium-term outlook, the agency forecast global oil demand will rise from 96.6 mill barrels per day last year to 103.8 mill barrels per day by 2022.

This demand growth will mainly come from non-OECD counties, as the forecast oil demand growth for these counties, according to the report, is expected to rise by 8.5 mill barrels per by 2022, while in contrast, OECD demand is expected to decline by 1.2 mill barrels per day over the same period, Gibson Research said analysing the report.


More efficient oil use and the shift towards alternative energy sources are cited as part of the reasons behind the slower demand growth. So effectively, the bulk of future oil demand will continue to come from the Asia/Pacific region.


IEA estimated that Asian crude demand will increase by around 5 mill barrels per day by 2022. Over the past few years, Asian crude producers have experienced a continual decline in domestic production, in part due to the low oil price environment (cheaper to buy on the international market), as well as depleting oil fields and lack of fresh investment.


The latest analysis said that this situation is unlikely to change in the foreseeable future. Research pointed towards further downwards pressure on Asian oil production, which is set to fall by more than 600,000 barrels per day by 2022, an equivalent of 1% of global oil demand. Half of this production decline is accounted for by the largest producer, China, but many fields are mature, drying up and extraction is becoming more expensive.


According to the IEA, Chinese production has reached its lowest level in nearly a decade and shows no sign of recovering. The report predicted a drop to 3.7 mill barrels per day by 2022, compared with 4 mill barrels per day in 2016.


The situation is the same for other Asian countries. By 2022, the IEA believed that in addition to Chinese losses, other Asian producers will see a 410,000 barrels per day drop in production with the biggest decline from Indonesia (falling by 125,000 barrels per day). Smaller losses are forecast for Malaysia, Thailand, Vietnam and India over the outlook period, but nevertheless adding to the picture. Of the Asian producers only Australian production is set to grow.


This situation could provide support for the crude tanker market in the medium-term, in particular the VLCC sector. The IEA report claimed that not all the additional barrels will be met by Middle East producers, as more production will be absorbed by the local refiners. Consequently, barrels will have to be sourced from other regions including the US, Gibson said.


Other developments in the Asian region include expanding refinery capacity, which will naturally require feedstock whether sourced domestically or otherwise. An illustration is the 200,000 barrels per day Vietnamese Nghi Son refinery expected to receive its first shipment of crude in May. Nghi Son is 35% owned by Kuwait Petroleum and will eventually produce 8.4 mill tonnes of product annually meeting around 40% of growing domestic demand.


These developments will support long-haul crude trades but could impact on the short-haul Aframax market in north Asia, which are already being impacted by pipeline developments. In addition, new refinery developments may support the crude import sector but could compete with long haul product flows into the region.


As the tanker market starts to feel the impact of the recent OPEC agreement, the industry continues to seek some good news to boost spirits, Gibson concluded.


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