19  October  2018

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 Infopetro -> Industry in Focus

China, India, Japan Hamper Asia Oil Demand Growth


As the global oil market frets about a stubborn supply

glut, faltering demand growth in key Asian crude importers

is further hampering efforts to restore market balance.

A fuel glut in China, a hangover from demonetisation in

India, and an ageing, declining population in Japan are

holding back crude oil demand growth in three of the

world's top four oil buyers.

The three countries make up a fifth of 97 million barrels

per day (bpd) in global oil consumption, and any hiccups

among them will mean lower-than-expected oil demand growth

in Asia, helping to undercut the OPEC-led effort to

support prices.

"We are indeed seeing lower demand from more than a few

clients - air, marine, road, industrial ... They are

actually consuming less fuel than anticipated," said

Michael Corley, managing director of Mercatus Energy


In China, vying with the United States as the world's

biggest oil importer, imports in May were still at a near

record of 9 million bpd, but a looming cut in refinery

operations is set to hit demand for crude oil in the third


In India, which overtook Japan as the world's third-

biggest oil importer last year, crude imports fell by more

than 4 percent between April and May to around 4.2 million

bpd <C-INIMP>, as after-effects of the country's recent

demonetisation programme hit consumption.

For the first five months of the year, India's imports are

about flat to the same period last year, following an

annual rise of 7.4 percent last year.

In Japan, Asia's most advanced economy, oil demand has

been in structural decline for years due to a declining,

ageing population, and the rise of cars with better

mileage or that use alternative fuels.

Japan in April imported around 3.5 million bpd <C-

JPIMPTOT>, down from a peak of 5.9 million bpd hit in


Coupled with plentiful supplies, the stuttering demand in

Asia has contributed to a 20 percent price fall for Brent

crude oil to around $45 per barrel, in what is the biggest

slump in a first half of a year since 1997.


In the latest indicator of a supply overhang, traders said

that five very large crude carriers (VLCCs) have been

chartered in recent days to store unsold oil.

Each VLCC can hold around 2 million barrels of oil, and

the five chartered for storage add to around 25

supertankers already sitting in southern Malaysian waters.

In a market condition known as contango, where spot crude

oil prices are cheaper than those for future delivery, it

is profitable to store oil for a later sales.

Currently, spot Brent is almost $1.50 a barrel cheaper

than that for delivery in early 2018.

"If oil prices head lower, floating storage will get more

traction," said Ashok Sharma, managing director of ship

broker BRS Baxi in Singapore.

The cheap spot price comes despite the effort led by the

Organization of the Petroleum Exporting Countries (OPEC)

to cut production by 1.8 bpd that has been in place since


Doubts over OPEC's compliance with its own targets and

soaring U.S. output have led to scepticism that markets

will re-balance soon.

"The slide in oil prices continues ... as markets remain

sceptical of OPEC's ability to balance supplies," ANZ bank

said on Friday.

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