Southeast Asia under pressure to cut refinery runs, fuel imports as demand lags far behind

Southeast Asian refiners are under pressure to lower their oil products output and also limit middle distillate imports due to the tepid fuel demand recovery outlook, with the region’s vaccination progress and economic activity expected to significantly lag behind other regions.

Southeast Asia’s oil demand recovery, especially for transportation fuels, will likely be much slower than the more economically advanced nations within and outside Asia amid slow progress in the vaccination program, according to refinery sources in Indonesia and Thailand, as well as oil industry research analysts at Vietcombank securities.

With the US, UK and many western European nations leading the global vaccination drive, while the pace of vaccination in China, South Korea and Singapore significantly outperforms in the Far East, many Southeast Asian countries are largely expected to lag behind due to the supply constraints of vaccines and lack of efficient vaccination infrastructure and social medical systems, the market sources and analysts said.

As a result, major refiners in Southeast Asia are grappling with surplus oil products, especially after consumer transportation fuel demand fell short of expectations in the past couple of months.

In Malaysia, gasoline output in April jumped to 474,289 mt, more than doubling from 223,795 mt in March, as domestic refiners ramped up output in anticipation of improved demand prior to the celebration of Ramadan over April 12-May 12.

However, the country’s gasoline output is expected to have dropped in May and will likely be limited from June onwards due to faltering driving activity after increased movement curbs were imposed in mid-May, according to a plant operations source at Petronas’ Melaka refinery.

Malaysia’s gasoline output is expected to fall below 440,000 mt in June and July, according to middle distillate marketers and refinery operation sources based in Kuala Lumpur and Melaka surveyed by S&P Global Platts.

The country has been grappling with a new wave of COVID-19 infections since the third week of May, with the number of daily new infections hitting a record peak of 9,020 cases on May 29, John Hopkins University data showed.

Malaysian driving activity as a result of the restrictions and subsequent lockdown has nosedived from a high of over 40% above baseline levels at end April to 37% below baseline level as of June 9, Apple mobility data showed.
Lackluster tourism, limited fuel imports

Meanwhile, the slow progress of the vaccination program in Thailand, Indonesia and Vietnam will likely continue to hurt the countries’ tourism sectors, putting continued pressure on transportation fuel demand and import volumes as the number of travelers will likely remain sharply below the pre-pandemic period, refinery sources and market analysts said.

“I don’t see production and imports of transportation fuels like gasoline and jet fuel to improve much from last year… these are economies that rely heavily on tourism but it’s rather worrisome because Southeast Asia might be one of the last regions to open up borders for quarantine-free traveling considering the painfully slow vaccination progress,” said a middle distillate trading manager at Indonesia’s state-run Pertamina.

Malaysia, Vietnam, Indonesia, Thailand and the Philippines had administered less than 11 doses of COVID-19 vaccines per 100 people as of June 13, compared with South Korea’s 25, China’s 55 and Singapore’s 75, according to latest data from health ministries in each Asian country collected by Platts.

Indonesia’s Pertamina will likely import 8 million-9 million barrels of gasoline in June, unchanged from May, as domestic demand remains uncertain amid rising COVID-19 infections, industry sources with close knowledge of the company’s import plans told Platts. This is the third straight month that the company has kept import volumes steady.

Vietnam saw its gasoline imports tumble to a 14-month low of 53,293 mt in May, preliminary data from Vietnam Customs showed. The country is expected to keep its gasoline imports below 130,000 mt/month on average in 2021 if international travel restrictions remain in place for the rest of the year, according to middle distillates distribution and trading sources based in Hanoi and Da Nang surveyed by Platts. In comparison, the country’s gasoline imports averaged 127,800mt/month in 2020 and 166,900/month in 2019, customs data showed.

Meanwhile, Thailand’s automotive diesel exports in April jumped 41.6% on the month to 128,227 b/d, latest customs department data showed, with the sharp hike coming on the back of weaker domestic demand due to enforced coronavirus-linked movement restrictions.

Driving activity plummeted from a year-to-date high of around 30% above baseline levels in mid-April to 40% below baseline levels as of June 14, Apple mobility data showed.
Source: Platts

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