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Fearing the future

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Hydrocarbon Engineering,

Asia’s economies are bracing for stress tests from the threats of a possible oil shock, a strong US dollar, and the hardline foreign policy stance of the US towards China, Russia and Iran. Asia spans the entire region from Pakistan in the west to New Zealand in the south to Japan in the north.

The Brent crude price has been hovering for months at a near four-year high of over US$75/bbl. At the same time, the US dollar has risen to a multi-year high, adding substantially to the energy cost of Asia’s mostly oil-importing economies. Some hedge funds and traders are betting on crude prices surging back to the US$100 – US$150/bbl range, a level not seen since 2014. They cite a combination of supply tightness, strong demand growth, and possible supply disruptions from geopolitical tensions in the Middle East, Venezuela and East Asia.

Based on the US Energy Information Administration’s (EIA) forecast for the Brent crude price and strong global demand growth, Asia’s oil expenditure could surge 36% from US$678 billion in 2017 to US$923 billion in 2018. The EIA expects Brent crude to average US$71.74/bbl in 2018, up sharply from last year’s US$54.15 and US$43.74 in 2016.

However, the EIA has been underestimating Asia’s oil demand growth and import expenditures in its forecasts the last two years. In 2016, it under-projected the region’s oil import cost by a third (US$133 billion) while in 2017, the agency was off by 42% (US$201 billion) as it was blindsided by the oil market’s strong recovery from the depressed levels of 2015 and 2016.

Furthermore, the strength of Asia’s oil demand is regularly undervalued. The region’s oil demand has surged despite rising prices over the 1998 to 2014 period, and again over the last two years.

If Brent rises sharply through the rest of 2018, there is a possibility that the region’s oil expenditure could exceed US$1 trillion for the year, nearly double the 2016 level of US$534 billion. Asia’s oil consumption is on course to breach 35 million bpd for the first time. Its oil import bill last exceeded US$1 trillion in 2014 when Brent crude averaged nearly US$99/bbl and the region consumed 30.24 million bpd.

This article was originally published in the November issue of Hydrocarbon Engineering. To read the full version, sign in or register for a free trial subscription.

Written by Contributing Editor, Ng Weng Hoong.

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Downstream news Asia Pacific downstream news