In addition, how Asian energy companies and policy makers will craft their future and new energy strategies for a region heavily dependent on fossil fuel imports will also be on their minds during the three-day conference, set to take place over Sept. 4-6 and organized by S&P Global Commodity Insights.
While the recent indicators of the US economy reflect a stronger-than-expected performance, China’s recovery falling below the expectations of analysts and policy makers is likely to keep the oil market on tenterhooks in the foreseeable future.
But despite a mixed global macroeconomic picture, S&P Global Commodity Insights expects oil market fundamentals to remain tight in the third quarter. Signs of tighter fundamentals have started to have an effect on prices, with Platts Dated Brent up sharply from mid-$70s/b in July.
In addition, the recent moves by OPEC and its allies have also been supportive for the oil market, with Saudi Arabia extending its 1 million b/d cut to September and Russia agreeing to cut 300,000 b/d.
S&P Global Commodity Insights expects global oil stock draws to average 2 million b/d from mid-June through September. Stock draws are anticipated to moderate in Q4 and to turn into builds in early 2024. Following this fundamental trend, Platts Dated Brent is expected to average $83/b in Q3 2023 and then moderate to $81/b in Q4 2023 and to $74/b in Q1 2024. Looking at the entire year, Platts Dated Brent is expected to average $81/b in 2023 and $77/b in 2024.
China factor versus fundamentals
“For commodity investors, although China remains key and the one we are watching closely, the recent uptick in oil prices is a testament that fundamentals eventually matter,” S&P Global Commodity Insights said in a research note.
S&P Global Commodity Insights has lowered its forecasts for China’s real gross domestic product growth from 5.5% to 5.2% for 2023 and from 5.0% to 4.8% for 2024. The sluggish rebound observed in recent quarters, particularly in the industrial sector, is attributable to feeble demand, both domestically and externally. However, the likelihood of the government introducing large-scale stimulus policies to instigate a vigorous recovery is relatively low.
While China’s oil demand is expected to peak in September-October, the sequential growth rate may not match previous year levels. But despite weakening economic expectations for China, S&P Global Commodity Insights expects that, with the support of seasonal consumption, China could witness a surge in oil demand during September-October this year.
The arrival of the Mid-Autumn Festival and National Day holidays could spur road and air travel demand, potentially boosting gasoline and jet fuel demand.
In addition, with the resumption of sea fishing, autumn harvesting and the anticipated industrial activity revival as high temperatures recede, diesel demand in the third quarter is expected to recover from its summer low.
On an annual basis, S&P Global Commodity Insights expects total oil demand in China to increase by 6.1%, or 940,000 b/d, year over year in 2023 to 16.4 million b/d, and up by 3.5% in 2024.
India alters Asian oil flows
With Russia moving to become the number one crude supplier to India, APPEC participants will be looking for signals on whether the volumes have reached their peak or could go higher. And more importantly, APPEC delegates will be looking for answers on whether oil flows would revert to pre-Ukraine war patterns once the conflict ends.
India received 1.82 million b/d of crude oil from Russia, accounting for approximately 37.2% of India’s total crude oil imports from January to August. This is a significant increase from the same period last year when India imported only around 0.47 million b/d of crude oil from Russia, constituting roughly 10.2% of its total imports.
Looking ahead to the upcoming festive season from September onward, it is anticipated that India’s crude oil imports from Russia will remain at elevated levels. This is because of high oil demand, with refiners expected to operate at maximum capacity.
According to S&P Global Commodity Insights forecasts, India’s crude oil imports from Russia are projected to constitute approximately 35%-40% of its overall imports in 2023, which could translate to around 1.9 million-2.2 million b/d, as long as Russian prices remain competitive compared to alternative sources, such as the Middle East and Africa.
Changes to the refining landscape
Another key trend the Asian region is witnessing is that refinery operations are gathering momentum. For instance, in India, as the festival season in September and October approaches, Indian refinery operations are anticipated to pick up, with crude runs expected to be around 5.3 million-5.4 million b/d in the October-December period, primarily due to strong domestic demand and favorable profit margins. Refining activities are expected to be robust in the second half of the year, driven by domestic demand.
According to S&P Global Commodity Insights, India’s oil demand is predicted to grow by 242,000 b/d in 2023, a slight revision down by 4,000 b/d from the previous update. The majority of this growth, over 60%, will likely be due to middle distillates.
And on the long-term refining theme, APPEC delegates will aim to also throw the spotlight on how refiners in Asia are fast carving out their long-term diversification plans.
While renewables, hydrogen and solar also figure in their ambitions, a key area of focus for refiners is raising their petrochemical intensity to ensure that their business models remain profitable in the event electric vehicles and other cleaner forms of energy take a toll on demand for transport fuels. Therefore, for many refiners, going further downstream is a viable option for remaining relevant in the longer term.
Sambit Mohanty is Asia Energy Analyst at S&P Global Commodity Insights, leading coverage for Platts Oilgram News for the Asia-Pacific region. Sambit is based in Singapore and has more than 25 years of experience as a senior journalist and editor analyzing commodities and energy trends in the region. He holds a Master’s Degree in Applied Economics.