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Low crude prices to support refining margins: Formosa
October 20, 2015 / 3:40 AM / 2 years ago

Low crude prices to support refining margins: Formosa

SINGAPORE (Reuters) - Crude oil prices are expected to hold at $50 a barrel to $60 a barrel next year, buoying global demand for fuels and keeping refining margins elevated, a senior executive at Taiwanese refiner Formosa Petrochemical Corp (6505.TW) said.

Refiners in Asia have enjoyed better-than-expected margins this year as low crude prices kept down costs and pushed world oil demand to a five-year high.

Margins could ease slightly next year as slower economic growth curbed demand, while crude prices could rise in the second half of 2016 on tighter supplies, Formosa executive vice-president Keh-Yen Lin told the Reuters Commodities Summit.

“If (crude) production drops by a certain extent, it will be easier for OPEC to manage supply and they may start interfering in the second half,” Lin said.

Since November, the Organization of Petroleum Exporting Countries has kept output high as its members fight for global market share. Abundant supplies have cut world crude prices LCOc1 CLc1 by half since the middle of last year.

Formosa was budgeting for a crude price of $50-$60 in 2016, similar to this year, Lin said.

“With low oil prices, we think that demand growth would be better than the 1.2 million bpd (barrels per day) forecast by the IEA (International Energy Agency),” he said.

The IEA, which advises industrialized countries on energy policy, cut its world demand forecast for 2016 last week, due in part to a weaker world economy. It also expects the global oil supply glut to persist through 2016. [IEA/M]

Formosa is expected to reap margins of $12-$13 a barrel this year, up from its earlier estimates of $11-$12, Lin said.

Still, slowing economic growth has affected consumption of industrial fuel diesel and the impact is expected to continue into 2016.

“Next year, margins could fall slightly by $0.50-$1 due to poor diesel demand in a weak global economy,” Lin said.

Strong gasoline and naphtha margins boosted Asian refining profits this year, although fresh supplies from new plants in the Middle East, India and South Korea may cap gains next year, he said.

Asia’s demand for naphtha as a petrochemical feedstock could also be curbed by new coal-to-olefins plants (CTO) in China which will start production next year, Lin said. Olefins are used as building blocks for other chemicals and plastics.

However, Formosa, an integrated refinery-petrochemical producer, still expected the petrochemicals market to remain healthy next year.

“There will be some impact from CTO but the plants may not run at full rate while the quality of its products may be another issue,” Lin said.

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Reporting by Florence Tan; Editing by Richard Pullin

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