Singapore refinery watchers worry about overcapacity, demand

Despite Singapore refineries' temptingly strong profit margins driven by record-high gasoline prices, analysts remain concerned about the threat of overcapacity and uncertain demand growth for oil products. In particular, China's transformation into a net exporter of products has worried the market.


SINGAPORE�Despite Singapore refineries' temptingly strong profit margins driven by record-high gasoline prices, analysts remain concerned about the threat of overcapacity and uncertain demand growth for oil products. In particular, China's transformation into a net exporter of products has worried the market.

Until last year, China was a net importer of such key products as kerosine and naphtha. It became a net exporter of most oil products this year with the aid of higher refinery runs and a 22-month import ban on gasoline and gas oil.

An energy consultant said that the permanent reversal of China from being a net importer to net exporter would be a "body blow" to regional demand.

Complex margins for the year so far hovering at around the $3/bbl mark was a pleasant surprise, but there is still underlying overcapacity in the industry, according to CS First Boston.

Complex margins, or profits from every barrel processed at the second stage of refining, have seen sparkling gains this year. Analysts pegged complex margins at $5.60-$6.29/bbl for the week ending Aug 11 and at around $4.26/bbl for the quarter to date.

This is a vast improvement over margins of $1.82/bbl seen 3 months ago and a stark contrast to the meager profits earned last year.

Merrill Lynch says that it is still looking at a forecast oil products demand growth of about 820,000 b/d this year for Asia, up from last year's figure of 730,000 b/d, but China remains a big concern.

More in Refining