Crude demand to fall in winter, petchems activity in Asia supportive – OPEC

Jonathan Lopez

12-Oct-2022

MADRID (ICIS)–Risks to the global economy are “skewed to the downside” in coming months but demand for petrochemicals feedstocks will remain strong in countries such as China and South Korea, crude-oil producing cartel OPEC said on Wednesday.

Following a healthy first half (H1) for crude oil demand, the global economy’s slowdown is to take its toll on average demand growth, said OPEC.

“While the first half of the year saw good levels of mobility, industrial activity and petrochemical feedstock requirements, the momentum has seen a slowdown due to reduced economic activity in recent months,” said the organisation.

“Global economic growth has entered into a period of significant uncertainty and deteriorating macroeconomic conditions, amid intensifying challenges including high inflation levels, tightening monetary policies by major central banks, rising interest rates and persisting supply chain issues.”

As a consequence, global oil demand growth in 2022 was revised down by 500,000 bbl/day, reflecting “recent macroeconomic trends” and oil demand developments in various regions.

OPEC said China’s extension of zero-COVID-19 restrictions in some regions as well as economic challenges in Europe would take its toll in crude demand.

Global oil demand for 2022 is now expected to grow by about 2.6m bbl/day.

For 2023, world oil demand growth was revised down to stand at about 2.3m bbl/day.

OPEC said ongoing tightness in product availability globally, particularly for gasoil, should remain supportive for refinery runs, along with expectations of a slight pick-up in diesel consumption for heating demand amid some additional potential for gas-to-oil switching.

“This will also depend on the severity of the winter in the Northern Hemisphere. Nevertheless, current signs of economic slowdown may further soften oil market fundamentals beyond the seasonal refinery turnaround period,” the organisation said.

ASIA PETCHEMS BOOM
Despite the clouds, petrochemicals demand for crude oil is to remain strong in Asia as new plants start up.

In China, petrochemical refiner Shenghong resumed crude buying ahead of the start-up of its 320,000 bbl/day refinery at Lianyungang in October.

“Along with a week-long public holiday, these factors are expected to support oil consumption in Q4, with demand rising by 100,000 bbl/day, year on year,” said OPEC.

“By 2023, China’s GDP is expected to expand by 4.8%. Additionally, China’s zero-COVID-19 policy could be significantly relaxed should the pandemic wane. Improving economic activity and government support is expected to boost oil demand.”

Oil demand in OECD Asia Pacific “sharply overshot” expectations, rebounding in July by 200,000 bbl/day, year on year, up from a decline of 200,000 bbl/day in June.

“July demand was driven by petrochemical feedstock requirements for naphtha, including demand from South Korea’s giant petrochemical producer LG Chemical. Naphtha posted growth of 100,000 bbl/day, year on year, compared to a decline of 60,000 bbl/day year on year in June,” said OPEC.

However, OPEC was downbeat about the overall growth in coming months.

It said there are several challenges presented by the heightened levels of uncertainty, the slowing economic growth, and a possible resurgence of COVID restrictions in China and elsewhere.

“Downside risks to this forecast includes continued inflationary trends, further monetary actions by major central banks, aggravated geopolitical tensions, worsening of the pandemic in the northern hemisphere during winter months, tightening labour markets and further supply chain constraints,” concluded OPEC.

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