Australia summer oil imports fade as demand falls
Saturday, 22 November 2008
Fayen Wong
Australia's summer oil imports, typically robust amid strong gasoline demand over the holiday season, are set to weaken from a year ago as oil refiners trim output due to poor margins and slackening fuel demand.
The country's thirst for overseas diesel, which has been growing at an average annual rate of 6 percent over the past few years, is also poised for a slowdown in coming months as major miners cut output and shelve expansion plans in the face of a global economic slowdown and sinking metal prices, energy analysts said.
"Crude imports will be weak since refiners are expected to cut gasoline output. Demand for diesel imports will also slow down as the mining boom fades," said Graeme Bethune, head of EnergyQuest consultancy based in Adelaide.
The global economic crisis, allied with record-high oil prices earlier this year, have slashed regional gasoline demand and squeezed refiner margins.
Despite crude oil prices tumbling more than 60 percent from a record-high above $147 in mid-July, average complex margins in the Singapore refining hub have halved in October from September to US$2.29 a barrel, and in the last 15 days averaged at minus US$1.79 a barrel, Reuters data showed.
With gasoline refining margins expected to remain pressured by a growing regional glut and new refining capacity to come onstream next year, Australia's seven refiners are likely to convert capacity away from gasoline towards more profitable middle-distillates, such as diesel and jet fuel.
Caltex Australia, the country's largest refiner, has said it may cut gasoline output and raise imports if gasoline margins are weak.
On the supply side, analysts said refinery shutdowns could also dent the country's demand for crude.
Royal Dutch Shell 's Australian unit plans to shut down its 85,000 barrels per day (bpd) ageing refinery in Sydney from the end of November for at least a month for maintenance.
Analysts and refinery sources said the shutdown was expected to last at least three months, during which Shell would have to halt its crude buys and rely on imports of petroleum products.
Other refiners may also face unplanned shutdowns due to teething problems as they move to produce cleaner diesel to comply with the government's new fuel-quality specifications, whereby refiners are required to produce lower-sulphur diesel of 0.001 percent (10 ppm) sulfur versus the current 0.005 percent.
Australia's petroleum products output in 2009 is expected to fall about 5 percent from this year, while total demand growth of products is seen to drop from an estimated 1.2 percent in 2008 to 0.9 percent next year, said Jit Yang Lim, a senior consultant at FACTS Energy Global in Singapore.
BP Plc and ExxonMobil Corp also own refineries in Australia, which together consume about 800,000 bpd of crude.
Thanks to the commodities-led economic boom, Australia's diesel imports jumped about 40 percent from a year ago to 6.4 million tonnes in 2007/08, and the country is now the region's third-largest diesel buyer, after Indonesia and Vietnam.
But commodity markets, too, have been spooked by the spectre of a severe global recession, forcing some of Australia's largest miners to scale back production plans, which means the ability for local buyers to digest extra diesel will be limited.
Firms that have announced plans to curtail output include Rio Tinto Ltd/Plc, Mount Gibson Iron Ltd, Fortescue Metals Group, Oz Minerals Ltd, and the list is growing longer by the day.
"The mining industry has been a key to the surge in diesel demand, so with miners buying less, the pace of growth for diesel imports will be much more modest," said Gerard Rigby, an analyst at the Fuel First Consulting.
A slowdown in the Australian economy, alongside the weak Australian dollar, could translate into lower imports and reduce the amount of freight hauled across the nation's highways-a double whammy to the Pacific nation's diesel demand.
"As the Australian economy slows, we do anticipate a slowdown in the industry next year," said Bill McKinley, spokesman for the Australian Trucking Association.
The mining and trucking industry together account for about 80 percent of Australia's total diesel consumption, meaning a slowdown in both sectors will have a significant impact on the country's overall diesel appetite and eat into refiners' profit.
Slower demand for gas oil in Australia, one of Asia's top diesel buyers, will also take some steam off global demand for clean diesel, which, unlike the struggling high-sulphur diesel market, is still seeing firm prices on healthy European demand.
However, any unplanned shutdowns open more opportunities for traders to increase shipments from South Korea, Taiwan and Japan.
"The 10ppm diesel market is already very tight and premiums could climb higher next year when the Mediterranean also switches to clean diesel," said a trader in an Australian refinery.
Australia's summer oil imports, typically robust amid strong gasoline demand over the holiday season, are set to weaken from a year ago as oil refiners trim output due to poor margins and slackening fuel demand.
The country's thirst for overseas diesel, which has been growing at an average annual rate of 6 percent over the past few years, is also poised for a slowdown in coming months as major miners cut output and shelve expansion plans in the face of a global economic slowdown and sinking metal prices, energy analysts said.
"Crude imports will be weak since refiners are expected to cut gasoline output. Demand for diesel imports will also slow down as the mining boom fades," said Graeme Bethune, head of EnergyQuest consultancy based in Adelaide.
The global economic crisis, allied with record-high oil prices earlier this year, have slashed regional gasoline demand and squeezed refiner margins.
Despite crude oil prices tumbling more than 60 percent from a record-high above $147 in mid-July, average complex margins in the Singapore refining hub have halved in October from September to US$2.29 a barrel, and in the last 15 days averaged at minus US$1.79 a barrel, Reuters data showed.
With gasoline refining margins expected to remain pressured by a growing regional glut and new refining capacity to come onstream next year, Australia's seven refiners are likely to convert capacity away from gasoline towards more profitable middle-distillates, such as diesel and jet fuel.
Caltex Australia, the country's largest refiner, has said it may cut gasoline output and raise imports if gasoline margins are weak.
On the supply side, analysts said refinery shutdowns could also dent the country's demand for crude.
Royal Dutch Shell 's Australian unit plans to shut down its 85,000 barrels per day (bpd) ageing refinery in Sydney from the end of November for at least a month for maintenance.
Analysts and refinery sources said the shutdown was expected to last at least three months, during which Shell would have to halt its crude buys and rely on imports of petroleum products.
Other refiners may also face unplanned shutdowns due to teething problems as they move to produce cleaner diesel to comply with the government's new fuel-quality specifications, whereby refiners are required to produce lower-sulphur diesel of 0.001 percent (10 ppm) sulfur versus the current 0.005 percent.
Australia's petroleum products output in 2009 is expected to fall about 5 percent from this year, while total demand growth of products is seen to drop from an estimated 1.2 percent in 2008 to 0.9 percent next year, said Jit Yang Lim, a senior consultant at FACTS Energy Global in Singapore.
BP Plc and ExxonMobil Corp also own refineries in Australia, which together consume about 800,000 bpd of crude.
Thanks to the commodities-led economic boom, Australia's diesel imports jumped about 40 percent from a year ago to 6.4 million tonnes in 2007/08, and the country is now the region's third-largest diesel buyer, after Indonesia and Vietnam.
But commodity markets, too, have been spooked by the spectre of a severe global recession, forcing some of Australia's largest miners to scale back production plans, which means the ability for local buyers to digest extra diesel will be limited.
Firms that have announced plans to curtail output include Rio Tinto Ltd/Plc, Mount Gibson Iron Ltd, Fortescue Metals Group, Oz Minerals Ltd, and the list is growing longer by the day.
"The mining industry has been a key to the surge in diesel demand, so with miners buying less, the pace of growth for diesel imports will be much more modest," said Gerard Rigby, an analyst at the Fuel First Consulting.
A slowdown in the Australian economy, alongside the weak Australian dollar, could translate into lower imports and reduce the amount of freight hauled across the nation's highways-a double whammy to the Pacific nation's diesel demand.
"As the Australian economy slows, we do anticipate a slowdown in the industry next year," said Bill McKinley, spokesman for the Australian Trucking Association.
The mining and trucking industry together account for about 80 percent of Australia's total diesel consumption, meaning a slowdown in both sectors will have a significant impact on the country's overall diesel appetite and eat into refiners' profit.
Slower demand for gas oil in Australia, one of Asia's top diesel buyers, will also take some steam off global demand for clean diesel, which, unlike the struggling high-sulphur diesel market, is still seeing firm prices on healthy European demand.
However, any unplanned shutdowns open more opportunities for traders to increase shipments from South Korea, Taiwan and Japan.
"The 10ppm diesel market is already very tight and premiums could climb higher next year when the Mediterranean also switches to clean diesel," said a trader in an Australian refinery.