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Singapore: Asian oil refining earnings may fall in the next few years as new processing plants start operations in India and China, Goldman Sachs Group said.
The benchmark complex refining profit in Singapore, Asia's biggest oil-trading centre, may fall to $6 a barrel in 2009 and $5.50 in 2010, from $9 this year, Goldman's India-based analysts Nilesh Banerjee, Karthik Bhat and Durga Dath said in a report yesterday, without giving earlier estimates.
Supplies of gasoline, diesel and jet fuel would increase, pushing refining margins lower, with about 2.5 million barrels a day of new capacity being added globally between 2008 and 2009, the Goldman analysts said.
Spare refining capacity would then increase as global oil demand would only rise by 1.5 million barrels a day in the same period, they said.
Reliance Petroleum is scheduled to start its refinery in the fourth quarter, and two PetroChina refineries would also begin operating in the second half of this year, the Goldman analysts said.
CNOOC would be starting a new plant in the fourth quarter.
Chinese refineries
With the start of China Petroleum and Chemical Corp's Qingdao refinery in June, a total 1.3 million barrels a day of refining capacity would be added this year, the analysts wrote in the report.
"While the last leg of the refining up-cycle was driven by delays and cancellations," new capacity mainly in China and India will add to output over the next 18 months.
"To make it worse, these capacities are likely to come at a time when global oil demand outlook is deteriorating, in our view," Goldman said.
Goldman has lowered its world oil demand growth to between 700,000 barrels and 800,000 barrels a day from 2008 to 2009, down from an earlier estimate of as much as 1.3 million barrels a day, according to the report.
Production cuts
Oil refiners would probably cut production as margins fall and supplies increase, and spare refining capacity would also rise, Goldman said.
Global refining capacity growth would exceed demand growth every year between 2008 and 2010 even after adjusting for "doubtful additions and potential project delays."
The potential for lower refining margins prompted Goldman to initiate coverage of Mangalore Refinery and Petrochemicals with a 'sell' rating.
Goldman's 12-month price target for Mangalore Refinery is Rs44 while current valuations imply "a much more bullish refining environment than our forecasts," the analysts said.
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