The East of Suez Oil Databooks provide a deep-dive analysis of key events and trends that impact the Asian and Middle Eastern oil markets, focusing on both medium- and long-term trends that shape the refining landscape and product trade.
COVID-19 has taken a toll on the crude oil and product markets. While the oil market must react swiftly to the challenges presented in the near term, it also needs to look ahead to a post-COVID-19 world. The Databooks take a close look at opportunities that lie ahead in the East of Suez upstream and downstream sectors for the years to come.
The Asia-Pacific region remains the critical driver of global demand growth. Although demand was dealt a huge blow in early 2020, the region has since largely recovered and petroleum consumption in several Asian countries is close to pre-pandemic levels.
While there is a perception that the pandemic has shifted the long-term demand trajectory downwards, we believe that demand will continue on its strong growth path when we fully emerge from the crisis. We provide analyses on countries and products that will lead the demand expansion. As part of this assessment, we also look at potential threats to demand, including the expansion of the EV fleet in key demand centers, growing biofuel and alternative energy use, as well as increasing talks on carbon neutrality.
Reduced demand and a collapse in margins have resulted in the permanent shutdown of a number of refineries globally. The difficulties have struck Asia hard as well, prompting announcements of refinery closures in Australia and the Philippines. The story does not necessarily end here. With Asian refiners still reeling from COVID-19, some other less complex/older refineries could be shuttered.
In these uncertain times, the long-term refining future may appear quite bearish. Refining will undeniably remain challenged over the next year or so. Nonetheless, we believe there is light at the end of the tunnel if some refiners act now and decisively, and close some capacity.
While China and India continue to expand their refining capacities in the next 3-4 years, very few new refining additions will materialize beyond the mid-2020s in Asia. Even in the Middle East, only a handful of refineries that are under construction will come onstream in the upcoming years. These shifts will allow for a strong recovery in margins before global demand peaks.
The Asia Pacific will remain net short of products such as LPG, naphtha and fuel oil, and needs to continue importing from other regions. In fact, the region will become a net importer of gasoline around mid-2020. Overall, Asia will attract arbitrage barrels and increasingly look to faraway regions to plug its deficit. The Databooks shed light on the changes in product trade expected over the long term.