(Bloomberg) -- Fuel demand is on the mend across Asia as nations emerge from coronavirus lockdowns, but most economies in the world’s biggest oil-importing region appear unlikely to replicate China’s rapid recovery.
Chinese consumption was already back at similar levels to a year earlier in mid-May after the country was largely shut down in February. While other nations are generally a couple of months behind China in terms of the impact from the pandemic, fuel consumption isn’t snapping back as fast.
Japanese gasoline demand was still down 27% in May from a year earlier, while South Korean processors are operating at rates that are 5 to 10 percentage points lower than usual. Indian diesel sales were nearly a third lower last month on a year-on-year basis.
The drastic steps taken by China to contain the virus, which allowed its economy to bounce back faster, are one reason for the disparities. Chinese refiners also benefited from a domestic floor price that boosted margins relative to their peers. By contrast, with Brent prices doubling since April processors across Asia are now having to grapple with depressed margins.
“The crude story is certainly picking up on buying activity in the East, as refiners have stocked up on $30 dollar oil,” said Michal Meidan, director of the China Energy Program at the Oxford Institute for Energy Studies. “But I think the market is getting ahead of itself slightly” and the recovery is likely to be gradual even as driving starts to pick up again in Southeast Asia, she said.
The uneven pace of the rebound suggests that oil will find it tougher to rally from here unless consumption picks up markedly. Brent crude, the global benchmark, is on track for its first weekly drop in seven weeks.
Here’s a closer look at how fuel demand and refining activity is recovering in Asian economies excluding China:
- Japan’s state of emergency due to the virus ended on May 25 and the country wasn’t hit as hard as many others in the region. However, fuel demand and refinery run rates are still well below pre-virus levels.
- Run rates at refineries excluding maintenance and accidents averaged 77.9% in the week through June 6, according to data from the Petroleum Association of Japan. That compares with average run rates excluding maintenance of at least 87% at the country’s three biggest processors in the year through March 2020, according to data from the companies.
- Gasoline consumption was 27% lower in May than a year earlier, according to an estimate from refiner JXTG Holdings Inc. Demand for the motor fuel is about 20% lower than a year earlier, Shunichi Kito, president of Idemitsu Kosan Co., Japan’s second-biggest refiner, said at a May 26 briefing. It was about 35% lower in early May, he said.
- Diesel demand was down 11% in May from a year earlier, kerosene dropped 10% and fuel oil A fell 13%, according to JXTG.
- South Korean refiners in general are running at around 80% to 85% of capacity, around 5 to 10 percentage points lower than usual, according to three traders who buy and sell oil for them. These rates aren’t likely to increase until product demand and refining margins improve, they said.
- SK Innovation Co, the country’s biggest refiner, is operating at about 75% to 80% capacity, said two traders who have knowledge of the processor’s operations. That compares with an 88% rate at SK’s Ulsan refinery in the second quarter of last year, company data show.
- Production of refined oil products fell 10.9% in April from a year earlier, data from Korea National Oil Corp. show. Consumption dropped 8.8% and exports declined 5.6%. The figures for May won’t be released until late June.
- While Indonesian domestic inventories swelled in April and Pertamina even resorted to storing gasoline on ships, demand is coming back rapidly as city lockdowns are eased or lifted.
- Indonesia’s overall fuel imports were down 3.6% in April from a year earlier, customs data compiled by Bloomberg show. The May numbers are likely to be similar, according to people with knowledge of the nation’s consumption and purchases.
- Vietnam, which has been hailed for its success in containing the virus, saw a sharp rebound in fuel imports in May after a slump in the previous two months. Diesel imports jumped 60% from a year earlier, according to data intelligence firm Kpler, while overall clean fuel imports were up 50%. Gasoline imports were up 50% on-month but down 41% year-on-year.
India / Pakistan
- India’s overall consumption of petroleum fuels recovered sharply in May from April, but was still 23% lower than a year earlier, according to provisional data released by the country’s oil ministry. Sales of diesel, the most widely used petroleum product in the country, rose 69% in May from April but were down 29% year-on-year. Gasoline sales jumped 82% month-on-month, but fell 35% from a year earlier.
- Indian Oil Corp., the country’s biggest refiner, said Wednesday that its plants were running at 83% capacity and it was aiming to get them to 90% this month. Bharat Petroleum Corp. Finance Director N. Vijayagopal said last week that its refineries were operating at almost 83% of normal capacity
- Pakistan’s sales of gasoline, diesel and fuel oil have rebounded by 45% to 1.48 million tons in May from a low in March, said Suleman Rafiq Maniya, head of advisory at Karachi-based Vector Securities Pvt. However, volumes for last month are still down around 10% from a year earlier, he said.
(Updates with latest Indian data in 18th paragraph.)
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