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Analysis: Thailand braces for period of slow oil products demand

Thailand's oil products demand, which grew a modest 1% in the first five months of 2015, is set to weaken during the rest of the year on slowing economic growth, which may prompt refiners to cut runs and further step up efforts to find buyers overseas for their surplus refinery output.

The southeast Asian nation saw its domestic oil products' output rising 9.54% in January-May to 1.07 million b/d. But with demand growing by a meagre 1.03% in the same period, the country aggressively pushed products to overseas markets, raising exports by 27.7% in the five-month period.

"But now with growth slowing, I expect margins to remain weak and runs in Thailand getting cut," said Lim Jit Yang, head of Asian oil products research at Energy Aspects. "Domestic demand will slow down in the second half of the year."

Tushar Bansal, head of oil, east of Suez, at Facts Global Energy, echoed this.

"Higher refinery runs have been driven by strong refining economics in the first half of the year. Thai refineries are geared towards production of middle distillates. However, margins have fallen off late, with gasoil cracks falling to single-digit levels. This is expected to impact refinery runs of the marginal barrel going forward," Bansal said.

Thailand now expects its economy to grow around 3% this year, revising it down from an earlier target of 3.7%, mainly because of falling exports. GDP growth last year was less than 1%.

GASOLINE DEMAND RACES AHEAD

Of all oil products, gasoline registered the sharpest consumption growth at home -- rising 13.61% in January-May to 161,674 b/d -- driven by lower fuel prices.

"Gasoline demand growth in Thailand has been good in the first half of the year, but in my opinion, I don't see that trend continuing in the second half of the year," said Ruengsak Thitiratsakul, deputy executive director at the Petroleum Institute of Thailand.

With production growth barely keeping pace with demand growth, Thailand has seen its gasoline exports fall 18% year on year to 20,339 b/d in the first five months of the year, data from the Energy Policy and Planning Office showed.

EXPORTS LED BY DIESEL, JET FUEL

The near 28% year-on-year rise in exports over January-May 2015 was led by diesel and jet fuel, EPPO data showed.

Diesel exports from the kingdom surged 44% year on year to 79,666 b/d, and jet fuel exports more than doubled from 11,000 b/d in January-May 2014 to 26,849 b/d in the same period this year.

"Thailand is in a similar situation to China, where gasoline demand is really strong, so refiners ramp up their production to meet gasoline demand, generating more diesel in the process," Yang said.

But with modest domestic diesel demand growth, the country is left with a surplus in diesel, which has then to be exported, he added.

Thailand's diesel demand rose 2.24% year on year to 388,412 b/d in January-May 2015, the data showed.

LPG LOSES SHINE

Meanwhile, LPG, once a rising star in Thailand thanks to heavy subsidies, registered a 9% year-on-year drop in demand to 219,539 b/d in response to pricing reforms that kicked off in the fourth quarter of last year.

The drop in demand saw imports come off by 36% to 42,061 b/d in the period, EPPO's data showed.

LPG is consumed by industries, households, petrochemical plants and the transport sector in Thailand.

Prior to the pricing reforms, every segment was charged a different price, with the transport sector paying the lowest at Baht 21.40/kg. The government's reform efforts, which saw prices for the different segments somewhat converging, are aimed at promoting the use of LPG mainly as a cooking fuel and for petrochemical production, but not as a transportation fuel.

But the substitution of LPG for gasoline and diesel by the transport sector has been marginal as the price of LPG is still relatively low compared with the other two fuels, PTIT's Ruengsak said.

"The substitution from LPG towards gasoline is very small. It's going to be a very slow and gradual process," Ruengsak said.

EPPO's data shows that demand for LPG fell across all segments except industry over January-May 2015.

Demand by households fell 7.4% year on year to 866,000 mt, by the transport sector fell by 7% to 745,890 mt and by petrochemical producers fell by 17% to 928,340 mt.

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