World oil supply risks being ‘stretched to limit’ — energy watchdog

Already in June the two key producers lifted output by more than 500,000 barrels per day between them, the International Energy Agency said on Thursday. (Reuters)
Updated 12 July 2018
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World oil supply risks being ‘stretched to limit’ — energy watchdog

  • The International Energy Agency pointed to supply disruptions in Libya after a string of attacks on infrastructure
  • Saudi Arabia and Russia opened their taps ahead of a key Vienna meeting in June where OPEC and Moscow agreed to up output in order to bring prices down

PARIS: Rising global oil supply, driven by crude giants Saudi Arabia and Russia, may come under pressure as key producers face disruptions, the International Energy Agency said Thursday.
The IEA welcomed in its July report last month’s agreement between the Organization of the Petroleum Exporting Countries (OPEC) and Russia to open the taps in order to bring prices down from multi-year highs.
But it pointed to supply disruptions in Libya after a string of attacks on infrastructure.
It also highlighted continuing unrest in Venezuela and a drop in Iranian exports after President Donald Trump announced he was pulling the United States out of the landmark nuclear deal reached in 2015.
“The large number of disruptions reminds us of the pressure on global oil supply,” the IEA said.
“This will become an even bigger issue as rising production from Middle East Gulf countries and Russia, welcome though it is, comes at the expense of the world’s spare capacity cushion, which might be stretched to the limit.”
The IEA report was published a day after both main oil contracts were sent into freefall by worries over a stronger dollar and the impact of the global trade war on demand.
The selling was also fanned by Libya’s resumption Wednesday of oil exports from its eastern production heartland after a showdown between the war-torn country’s rival authorities.
Even though Libyan exports have resumed, the IEA remains worried for the future.
“At the time of writing, the situation seemed to be improving, but we cannot know if stability will return,” it said.
“The fact that so much production is vulnerable is clearly a cause for concern.”
Also worrisome was the unabating unrest in Venezuela, which has sent output from the Latin American oil giant crashing in recent weeks.
And while Iran has yet to feel the full impact of renewed US sanctions, the IEA fears there could be “an even steeper reduction than the 1.2 million barrels per day seen during the previous round of sanctions.”
Iraq, which is also chronically restive, does not have spare capacity either, leaving most of the job of hiking OPEC production to Saudi Arabia, the United Arab Emirates and Kuwait.
“We see no sign of higher production from elsewhere that might ease fears of market tightness,” the IEA said.
Saudi Arabia and Russia opened their taps ahead of a key Vienna meeting in June where OPEC and Moscow agreed to up output in order to bring prices down.
“Already in June the two key producers lifted output by more than 500,000 barrels per day between them,” the IEA said.
“Saudi Arabia’s sharp increase allowed it to overtake the US and reclaim its position as the world’s second largest crude producer, and if it carries out its intention to produce at a record rate near 11 million barrels per day this month, it will challenge Russia,” it added.
But they alone cannot carry the burden of keeping the oil market stable.
“Despite higher output in June, OPEC oil supply was down 700,000 barrels per day compared to a year ago, with Venezuela lower by nearly 800,000 barrels per day, Angola by 210,000 barrels per day and Libya by 130,000 barrels per day,” the IEA said.
“Even so, global oil output was 1.25 million barrels per day higher than a year ago as rampant US output underpinned healthy non-OPEC growth.”


Asia’s refining profits slump as Mideast exports surge

Updated 23 February 2019
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Asia’s refining profits slump as Mideast exports surge

  • Since 2006, the Asia-Pacific has been the world’s biggest oil-consuming region, led by industrial users South Korea and Japan along with rising powerhouses China and India
  • However, overbuilding of refineries and sluggish demand growth have caused a jump in fuel exports from these demand hubs

SINGAPORE: Asia’s biggest oil consumers are flooding the region with fuel as refining output is exceeding consumption amid a slowdown in demand growth, pressuring industry profits.
Since 2006, the Asia-Pacific has been the world’s biggest oil-consuming region, led by industrial users South Korea and Japan along with rising powerhouses China and India.
Yet overbuilding of refineries and sluggish demand growth have caused a jump in fuel exports from these demand hubs.
Compounding the supply overhang, fuel exports from the Middle East, which BP data shows added more than 1 million barrels per day (bpd) of refining capacity from 2013 to 2017, have doubled since 2014 to around 55 million tons, according to Refinitiv.
Car sales in China, the world’s second-biggest oil user, fell for the first time on record last year, and early 2019 sales also remain weak, suggesting a slowdown in gasoline demand.
For diesel, China National Petroleum Corp. in January said that it expected demand to fall by 1.1 percent in 2019. That would be China’s first annual demand decline for a major fuel since its industrial ascent started in 1990.
The surge in fuel exports combined with a 25 percent jump in crude oil prices so far this year has collapsed Singapore refinery margins, the Asian benchmark, from more than $11 per barrel in mid-2017 to just over $2.
Combine the slumping margins with labor costs and taxes and many Asian refineries now struggle to make money.
The squeezed margins have pummelled the stocks of most major Asian petroleum companies, such as Japan’s refiners JXTG Holdings Inc. or Idemitsu Kosan, South Korea’s top oil processor SK Innovation, Asia’s top oil refiner China Petroleum & Chemical Corp. and Indian Oil Corp., with some companies dropping by about 40 percent over the past year. Jeff Brown, president of energy consultancy FGE, said the surge in exports and resulting oversupply were a “big problem” for the industry.
“The pressure on refinery margins is a case of death by a thousand cuts ... Refinery upgrades throughout the region are bumping up against softening demand growth,” he said.
The profit slump follows a surge in fuel exports from China, India, Japan, South Korea and Taiwan. Refinitiv shipping data shows fuel exports from those countries have risen threefold since 2014, to a record of around 15 million tons in January.
The biggest jump in exports has come from China, where refiners are selling off record amounts of excess fuel into Asia.
“There is a risk for Asian market turmoil if (China’s fuel) export capacity remains at the current level or grows further,” said Noriaki Sakai, chief executive officer at Idemitsu Kosan during a news conference last week.
But Japanese and South Korean fuel exports have also risen as demand at home falls amid mature industry and a shrinking population. Japan’s 2019 oil demand will drop by 0.1 percent from 2018, while South Korea’s will remain flat, according to forecasts from Energy Aspects.
In Japan, oil imports have been falling steadily for years, yet its refiners produce more fuel than its industry can absorb. The situation is similar in South Korea, the world’s fifth-biggest refiner by capacity, according to data from BP.
Cho Sang-bum, an official at the Korea Petroleum Association, which represents South Korean refiners, said the surging exports had “triggered a gasoline glut.”
That glut caused negative gasoline margins in January.