- Platts Analytics expects Asia’s oil demand to grow 1.5 million b/d in 2022
- Asia pump prices rising fast, oil import bills add to region’s headaches
- Governments ponder cleaner energy alternatives after oil’s surprise surge
A recent news article published in the Platts states that Asia rethinks oil supply, fiscal strategy as crude races toward $100/b.
Dramatic sprint of crude oil
The dramatic sprint of crude oil toward $100/b is prompting Asian importers to rethink supply strategy as well as their fiscal roadmap, which could result in an aggressive recourse to strategic reserves, changes to fuel subsidies and taxes, and a much bigger push toward new energy alternatives.
Although the oil demand outlook for top consumers China and India looks resilient following a lengthy period of pandemic-hit uneven growth, keeping the oil import bill in check is one of the biggest priorities in Asia at a time when governments are desperate to allocate funds for economic revival, analysts said.
“High oil prices will dampen demand and will undermine the fragile economic recovery if they continue to rise,” said Lim Jit Yang, advisor for oil markets at S&P Global Platts Analytics.
Asian oil demand to grow
Platts Analytics expects Asian oil demand to grow by 1.5 million b/d year on year in 2022, up from 1.2 million b/d in 2021, as the impact of the omicron coronavirus variant on Asian oil demand is expected to be relatively less severe than the delta strain, and with many countries moving toward reopening economies due to higher vaccination rates.
Asian refiners have continued to call for OPEC+ to raise supply by at least 800,000 b/d. The group’s decision to increase output by 400,000 b/d for March may not ease tight supplies and cool overheated prices in the region, according to a S&P Global Platts survey of analysts.
Dipping into SPRs
Following the White House announcement in November that the US would release 50 million barrels from its SPR in early 2022, India, China, South Korea and Japan followed suit and announced plans to release SPRs in an effort to boost supplies and battle rising prices.
But Asian countries have so far been reluctant to release huge volumes from SPRs just as a cushion for high prices.
“In addition to SPR releases earlier, a few Asian countries have taken various measures to ease the impact of high prices on consumers, including introducing fuel subsidies in Japan and a reduction of fuel taxes in South Korea and India.” Lim said.
Japan is providing subsidies to refiners and oil product importers in the current quarter with the aim of curbing the price rise in the domestic market.
South Korea lower taxes
South Korea lowered taxes on auto fuels by up to 20% for six months from November, but industry and market participants called for the scale and duration of the tax cuts to be increased to effectively ease upward pressure on pump prices and help tame accelerating inflation.
Consumers and small businesses in South Korea initially found comfort in cooling retail fuel prices toward the end of 2021 as government tax cuts started to take effect.
However, with a surge in outright crude prices of close to $20/b to date in 2022, and with physical sweet crude benchmark Dated Brent rising to $96.75/b Feb. 9 from $77.02/b Dec. 31, pump prices in Asia’s fourth-biggest energy consumer have staged a strong rebound in the first quarter.
South Korea’s retail gasoline prices averaged Won 1,718/liter ($1.44/liter) in the week to Feb. 6, up from an average of Won 1,650/liter ($1.38/liter) in December.
“While we forecast producer price index inflation to have peaked in Q4 2021, it is likely to remain elevated, at least in the first half of 2022. In addition, risks are to the upside amid high oil prices and the threat of renewed supply chain issues due to omicron outbreaks,” Oxford Economics said in a research note on Asia.
Demand so far resilient
Rajat Kapoor, an oil & gas consultant and advisor based in Mumbai, said the oil demand outlook in Asia remains positive for 2022, as the omicron variant doesn’t seem to have caused much demand destruction in the growing Asian economies of India, Japan, China and the ASEAN region.
“Higher oil prices could potentially put a slight dent in Asian markets, especially in price-sensitive markets like India, but that pullback would be short-lived,” Kapoor said.
Reduced individual fuel consumption
“While high prices above $90/b and leading up to $100/b will reduce individual fuel consumption, overall demand and economic activity isn’t expected to suffer greatly on the back of high oil prices,” he added.
In addition, the oil import outlook for China, Asia’s biggest consumer, is helping the market to draw strength from the numbers. S&P Global Analytics estimates China’s crude imports in 2022 will rise 554,000 b/d from last year.
Vibhuti Garg, lead India energy economist at the Institute for Energy Economics and Financial Analysis, said that $100/b oil is expected to highlight the urgency to shift toward cheaper renewable energy alternatives in an effort to ease the pain arising from sky-high oil import bills.
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