(Business.inq7.net, Sept 19, 2006) - SINGAPORE--The recent sharp declines in shares of Asian oil refiners were driven by short-term factors and do not reflect any deterioration in the long-term fundamentals of the industry, a Merrill Lynch research report said.

"In our opinion, the recent sell-off was predicated on short-term factors while the refining fundamentals remaining highly attractive in the medium- to long-term," said the 21-page report dated Sept. 19.

"Robust global oil demand remains in evidence, Asian transportation fuel demand continues to hold up strongly, and there is a lack of any significant capacity additions before 2009," it said. Driven by the recent sharp declines in the Singapore complex refining margins, some refining stocks have lost 7-10 percent in the past month, it said. Naphtha and fuel oil spreads have hit all-time lows in the past few weeks on excess supply of both products, it said.

The naphtha weakness was caused by a flurry of temporary maintenance shutdowns by Asian petrochemical producers, while fuel oil was hurt by the inflow of favorably priced arbitrage cargo from Europe since June, the report said.

Naphtha prices will likely rebound as the 6-7 percent of North Asian chemical plants now off-line for maintenance will come back on-stream towards the end of the year, it said.

Fuel oil prices should also bounce back because the arbitrage cargo inflow has stopped on weak spread, run rates at some Japanese and Korean refiners have fallen and stronger demand in the North Asian winter, it said.

Merrill analysts said in the report that they had revised down their forecast for 2007 capacity expansion in Asia-Pacific's refining industry by 16 percent due to project delays or cancellations in China, India and Thailand.

Merrill lowered its demand forecast marginally.

It downgraded Asia-Pacific demand growth for 2006 to 1.4 percent versus 1.9 percent previously due to higher oil prices, adding that it left its forecast for utilization rates unchanged.
Source:Business.inq7.net
tag:economy