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Global: Energy: Oil - Refining
Moving into higher utilisation rates; upgrade Asian refining outlook
Global refining to improve into 2011E as utilisation to rise further
We believe that the global refinery utilisation rates will improve further
between 2011E-13E as incremental oil demand growth largely exceeds our
updated refining capacity addition forecasts for these years. We find that
some of the upcoming refining projects are likely to get pushed back either
due to execution delays or from poor economics, while oil demand growth
has been surprising us on the upside. We expect the global utilisation
rates to cross 85% in 2012E and 2013E, before moderating in 2014E.
Marked difference likely between refining performances of
US/Europe and Asia, driven by vastly different demand scenarios
We raise our Asian refining stance to Attractive from Neutral but retain our
Neutral view for US/Europe refiners as we believe the diverging oil
demand growth trend between OECD/ non-OECD will result in contrasting
regional refining utilisation rates over the medium term. We see Asian
utilization rates moving up, while US utilisation rates remain sluggish and
European rates undergoing a structural decline.
China to turn net diesel importer in 2Q11E; China demand
sufficient to consume its 2010E-13E refining capacity additions
We estimate China to turn into a net diesel importer in 2QCY11E, as oil
demand growth remains strong and China adds only limited refining
capacity during 2011E-12E. Overall we find China demand growth sufficient
to consume its entire added refining capacity between 2010E-13E.
Upgrade middle distillate cracks and Singapore margin forecasts
We upgrade middle distillate cracks forecasts for Asia resulting in changes
in earnings and target prices, but keep US/European forecasts almost
unchanged. Our outlook on gasoline remains muted as it continues to be
primarily dependent on US oil demand outlook. We note that stronger oil
demand growth, delay in new capacities and widening of light-heavy oil
price differential could provide further upside to our current forecasts.
In our coverage, in Asia we like Buy-rated GS Holding (Korea, Conviction
list), SK Energy (Korea) and Reliance Industries (India). In US, we prefer
Holly and Frontier (both Neutral) over Valero and Sunoco (both Sell). In
Europe, we like Motor Oil (Buy) over Tupras, Neste Oil and Saras (all Sell).
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