APIC ’15: Low oil prices good for Asia; benefit to wane in H2

Focus article by Nurluqman Suratman

SEOUL (ICIS)–Net crude oil importers in Asia are benefitting from low oil prices but this advantage might disappear in the second half of the year, as crude is expected to increase steadily, consultants from WoodMackenzie said on Thursday.

China, India and Japan, which are heavy importers of crude, are projected to save more than $240bn from their trade bill in 2015 on import cost if oil prices stayed around $60/bbl, said Ed Rawle, chief economist at Wood Mackenzie, at the 36th Asian Petrochemical Industry Conference (APIC) in Seoul, South Korea.

China is expected to save nearly $90bn on import costs, while India and Japan will have cost savings of about $50bn, according to Rawle.

The US, meanwhile, stands to benefit the most from low crude oil prices and is projected to save close to $100bn on import costs, he said.

In Asia, only part of the benefit stemming from crude oil price downtrend will reach domestic consumers because of currency depreciation, higher taxes and cuts in fuel subsidies, he said.

Indonesia, for example, will see retail gasoline prices increase by 2% year on year in the first half of this year because of the cut in fuel subsidies, according to Rawle.

China’s domestic gasoline prices fell by 27% over the same period, limited by government-imposed hikes in the fuel consumption tax since November last year, he said.

But with crude prices expected to recovery slowly throughout 2015 and 2016, import costs of crude oil in Asia may also rise in tandem. 

This forecast is finely balanced and is subject to many uncertainties, said Alan Gelder, global practice leader for the refining and marketing industry at Wood Mackenzie.

Low oil prices do not stimulate strong demand in emerging economies, with lower GDP outlook reducing longer term demand growth, Gelder explained.

“We are fairly confident that the oil prices have hit the floor and will go up unless something unforeseen happens,” he said, adding that prices are unlikely to go below $45/bbl for the remainder of the year.

Brent crude oil is expected to move towards $70/bbl by the end of 2015, according to Gelder.

Crude oil prices will show a broad plateau in the first half of this year before rising in the latter half of 2015 amid an expected drop in overall supply and stronger oil demand recovery, he said.

The global refining industry has benefitted from the fall in crude prices, as product prices lagged, and this in turn has driven high refining runs which are unsustainable, according to Gelder.

Global product stockpiles are expected to increase in the second half of 2015 and this will weaken global crude runs, he said.

Regional refining margins are expected to return to “historical norms” from the latter half of this year, with Asian refiners challenged by oversupply, Gelder said.

The two-day conference in Seoul ends 8 May.

Additional reporting by Tahir Ikram

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