Asia-Pacific regional demand for petroleum products will continue to grow while supply, despite plans for additional refining capacity, struggles to keep pace, said Fesharaki Associates Consulting & Technical Services Inc. (FACTS) in an October report.
However, expected refining-capacity additions in the Middle East will put pressure on product prices and hence margins in the region, FACTS analysts reported. They said, “2005 is expected to be a good year for refiners, but margins will decline slightly from the aberration of 2004 and continue to weaken as new capacities from China and India come on stream to depress product prices, while crude prices continue to rise.”
The nominal price for Arab Light crude in the second quarter of 2005 reached nearly $50/bbl for the first time in three decades, but in real 2004 prices it was only about half the peak reached in the late 1970s of $101.65/bbl, the FACTS analysts said.
Dubai crude prices are expected to stay strong, above $40/bbl in the near term, and to continue to strengthen through 2010 before reaching a level (around $80/bbl) that will eventually curb demand and drive technological advances. “Beyond 2010, while oil reserves are finite, technological advances on both the supply and demand side of the equation will act to keep prices in check,” FACTS said.
FACTS analysts expect residual catalytic cracking (RCC) margins to moderate until 2009 but to remain economical, unlike the poor margins of several years ago. “RCC refining margins can be expected to improve thereafter if refiners abstain from adding further capacity as demand continues to rise,” FACTS reported.
Price volatility has long been a prominent feature of the oil market. “But oil prices in the recent past have continued to trend upward reaching historical highs not seen in the past three decades,” said FACTS. “The question in many minds today is whether this is just a blip or a trend that will continue.”
Incremental demand growth of 2.7 million b/d in 2004 “was an aberration,” the analysts said. “We expect incremental growth to drop to around 1.5-2 million b/d in 2005 as China’s growth slows. Yearly demand growth should resume its historical trend of around 1.5 million b/d from 2006 onwards.”
On the supply side, non-OPEC growth is expected to average 300,000-400,000 b/d in 2006-10 and will probably reach a plateau between 2010 and 2015. OPEC is expected ultimately to boost its supply to fill the deficit between non-OPEC supplies and escalating world demand. However, FACTS said, “We envision a limited growth of supply beyond 2006 as OPEC countries-controlling most of the world’s oil reserves and typically inaccessible to foreign major oil companies-may find it difficult to deliver the huge amount of incremental supply needed by the market.” ✦