Asia Oil Refinery Delays Favor Producer Case for Extending Output Cuts

Reuters

SINGAPORE, May 22 (Reuters) - Delays in the start up of new oil refineries in Asia will provide support for appeals by crude producers, led by Saudi Arabia and Russia, to extend output cuts to next March to support higher prices.

Asia's refining capacity in 2017 was expected to expand by the most in three years, helping to tilt the global oil market back into balance as production cuts led by Russia and the Organization of the Petroleum Exporting Countries (OPEC) took effect. But analysts are rethinking the Asia demand impact after delays in Chinese and Vietnamese projects, adding more importance to a potential extension of the producer-led supply cuts.

Because of the delays, energy consultants Wood Mackenzie now expect a net refinery capacity addition in Asia of 360,000 barrels per day (bpd), down from a forecast of 450,000 bpd in December.

"If these projects had come on time, that would have given some head room for OPEC's production to the tune of 300,000 to 400,000 bpd at least," said Suresh Sivanandam, analyst at consultancy Wood Mackenzie.

"So these delays would mean that market rebalancing could be delayed and hence the need for extending the production cuts."

State-owned PetroVietnam said on May 18 that it was delaying commercial operations at its 200,000 bpd Nghi Son refinery to the end of December. The project is a joint venture with Kuwait Petroleum Corp <IPO-KUWP.KW> and Japan's Idemitsu Kosan Co. Ltd

A 200,000 bpd expansion at CNOOC Corp's Huizhou refinery planned for start-up around May or June has been delayed, said a company official who declined to be named.

CNOOC did not reply to an e-mail seeking comment.

The falling Asian demand and the possible extended producer cuts come at the same time that Asia is importing more light crude from the United States. This is increasing the risk of a battle among producers over market share in the region.

Shale oil production in the United States gained by nearly 617,000 bpd from December to June, government data showed.

Saudi Aramco <IPO-ARMO.SE> has been supplying additional volumes of light crude to Asia despite cutting exports of heavier grades. At the same time, Kuwait Petroleum Corp (KPC) is also looking for new outlets for its crude after closing a domestic refinery in April, traders said.

A potential new outlet is PetroChina's Yunnan refinery which is receiving crude via a pipeline from Myanmar and is expected to start trial runs in June. The state-owned Chinese major had been in talks with Saudi Aramco for long-term crude supplies.

 

(Reporting by Florence Tan; Additional reporting by Meng Meng in BEIJING; Editing by Christian Schmollinger)



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