S.E. Asian economic crises not major factor in tanker trade woes

Although global oil demand has been squeezed by economic crises in Southeast Asia, regional problems are not affecting oil tanker markets dramatically. This is the view of Drewry Shipping Consultants Ltd., London, which says that Southeast Asia is an easy target when bad news in shipping markets occurs but contends that many apparent problems are part of wider issues.

July 27, 1998

3 min read

Although global oil demand has been squeezed by economic crises in Southeast Asia, regional problems are not affecting oil tanker markets dramatically.

This is the view of Drewry Shipping Consultants Ltd., London, which says that Southeast Asia is an easy target when bad news in shipping markets occurs but contends that many apparent problems are part of wider issues.

"In the oil tanker sector," said Drewry, "freight rates have remained relatively firm, and global oil demand is still expected to increase. Some countries will undoubtedly experience a demand contraction, but the tanker fleet is likely to post net growth in the year.

"The most that can be said is that weakness in demand for cargoes will merely aggravate (problems resulting from) an expansion of supply in the near term; Southeast Asia is not the root cause of the problem."

The analyst expects oil demand in the region's main consuming countries-Indonesia, Malaysia, Philippines, Singapore, and Thailand-will fall in 1998 from the 1997 level, but by less than 300,000 b/d vs. an earlier prediction of 1998 demand at 3 million b/d.

"This has to be placed into context," said Drewry, "against the wider Asian region encompassing China and India, which consumed almost 20 million b/d in 1997.

"As a consequence, the Southeast Asian countries account for around 15% of this total-insufficient to undermine tanker demand. Furthermore, a decline in crude output in the region will progressively enhance the need for long-haul imports post-2000."

Positive side seen

Drewry sees a positive side to the Asian crises for the oil industry, in the context of global market conditions. This is because many Southeast Asia countries have large subsidies in effect for domestically consumed products.

Thus, reckons Drewry, the fall in crude oil and refined products prices has eased some of the oil import cost burdens and thus may encourage deregulation, an effect already said to be evident in the Philippines.

"The immediate effect of the crisis has also been for destocking," said Drewry. "Thailand, for example, has eased its mandatory requirements. But this is clearly a short-term measure and, in due course, imports are likely to recover.

"Almost 90% of more than 200 oil companies active in the upstream industry, when surveyed in January 1998 by a major bank, revealed that the economic developments in Southeast Asia had no impact at all on their spending plans for 1998 or beyond."

The analyst is cautious about a recovery in Southeast Asian oil demand, reasoning that the economic weakness could extend into 1999. Given that there may also be some deregulation of oil prices in the next 18 months, Drewry predicts the region's crude oil demand could fall 5% further in 1999.