JEDDAH – Saudi Arabia and the UAE will increasingly focus their oil exports on industrializing economies in Asia, in line with a transformation of international trade flows toward emerging markets, a report by HSBC and Oxford Economics showed.
Both Gulf countries will remain major oil producers during the next two decades, although Saudi Arabia – the world’s largest oil producer - will gradually diversify its export trade into other sectors where it is also competitive, such as plastics and chemicals, the report said.
While maintaining petroleum exports, the UAE is expected to have the tenth largest growth in merchandise exports in the world between 2021-30.
Emerging Asian economies, where demand for raw materials is expected to rapidly expand, also are expected to constitute the fastest source of export growth for Egypt as it sees petroleum overtake chemicals as its major export.
The International Energy Agency, in its “Oil Market Report” for the month of February this year, forecast that Chinese demand growth in 2013 remains roughly on par with that made in last month’s Report, when it was revised higher – to 4 percent from 3.2 percent. Both recent Chinese oil statistics and economic indicators remain supportive of this more bullish forecast. The overall Chinese apparent demand estimate for 2013 remains roughly unchanged from last month, at 10 mb/d.
Consumption averaged 9.6 mb/d in 2012, up by 370 kb/d (or 4.0 percent), a modest 5 kb/d up on last month’s Report. Chinese apparent oil demand scaled new heights in November and December, as growth tested double-digit percentage point territory, having struggled at an average of 2.9 percent earlier in the year.
Although a number of factors – such as a change in excise duties and the commissioning of new refinery capacity – may have distorted the estimate, it probably did not hurt that several key macroeconomic variables showed clear signs of improvement.
GDP growth, for example, rose in 4Q12, to 7.9 percent, having slowed to 7.4 percent in 3Q12.
Total Chinese exports also improved, with y-o-y growth accelerating from November’s relatively flat 2.9 percent expansion to a robust 25 percent gain in January. Forward looking indicators, such as HSBC’s Manufacturing PMI – where any reading above 50 highlights a bias toward ‘expanding’ sentiment – underpinned the trend, with a third consecutive ‘expansionary’ month seen in January, at 51.9 and a fifth successive rise.
For Japan, IEA report said preliminary estimates for December depicted 5.4 mb/d of oil products being consumed, roughly unchanged on the year earlier but 265 kb/d more than our month earlier estimate. A cold spell meant large quantities of fuel oil/crude oil were still required in a power sector shorn of most of its nuclear capacity. The forecast for 2013 is for a decline of 175 kb/d (or 3.7 percent), to 4.6 mb/d, as economic momentum eases and the prior year’s nuclear replacement demand falls out of the y-o-y equation.
In related, longer-term news, the new Japanese government is reportedly giving consent to the gradual return of those nuclear reactors currently closed.
For economic reasons this was a move predicted in October’s Medium-Term Oil Market Report, but one that was always likely to prove problematic for political reasons.
Contrasting the previous strategy – no-nuclear future, by 2040 – the new administration has said that it will target the construction of new, safer nuclear reactors, as the government looks to limit the Japanese dependence on expensive imported fossil fuels.
In the case of India, IEA report forecast demand for 2013 has been curtailed on account of weaker assumed economic growth and the likelihood of higher diesel prices.
Demand growth of 2.7 percent is now assumed (or 100 kb/d), to 3.75 mb/d, a weaker gain than in last month’s Report (2.8 percent), the reduction largely caused by the lower assumed economic growth (5.9 percent versus previous 6.0 percent).
The likelihood of higher gasoil/diesel prices in 2013 has further compounded the forecast, as the government has agreed to gradually reducing diesel subsidies.
As on Jan.17, the subsidy reduction effectively meant that diesel prices charged to individuals rose by half a rupee per litre (roughly 1 US cent). Delhi, for example, now charges 47.65 rupees (88 US cents) a liter (prices varying from state-to-state due to local taxes). Bulk users, such as apartment-complexes (which use diesel in their back-up power generating systems), saw an even greater 11 rupee/liter (20 US cents per liter) price gain. Gasoline (+3.7 percent) is forecast to outpace gasoil/diesel (+2.6 percent) in 2013, as the relative price discrepancy eases. Roughly 3.7 mb/d of oil products were consumed in 2012, 135 kb/d up on the year (or 3.9 percent). The 2012 estimate is 5 kb/d higher than that assumed last month, consequential on 30 kb/d being added to the 4Q12 number: 50 kb/d more in November and 35 kb/d in December.
Egypt is expected to maintain its key trading partners India, Saudi Arabia and the US, while China rises to become a major market by 2030 as other traditionally important countries, such as Turkey and France, decline in significance.
Globally, the large emerging economies will drive a rebound in world trade and contribute the majority of gross domestic product growth in the coming decades, in contrast to developed nations, whose exports are expected to grow at a more subdued pace, the report said.
Export growth will be strongest from India, Vietnam and China, which are all expected to post double-digit annual growth until at least 2020. “Trade between emerging markets (so-called ‘south-south’ trade) will increase in importance as these economies grow wealthier, entailing a shift toward higher domestic demand,” the report said.
“Advanced economies currently conduct the majority of their trade with other developed economies, but they will see a growing share of their exports directed to the emerging markets.”
“Faced with competition from lower-cost producers in the emerging markets, exports from the advanced economies will be increasingly focused in high-technology sectors, where they can still command a competitive advantage.”
China is expected to shift its expertise from textiles and wood manufactures to more sophisticated sectors such as industrial machinery and ICT equipment, which could soon account for half of the nation’s forecast growth.
HSBC said this will create opportunities for economies with ample supplies of low-cost labor, such as Vietnam and Bangladesh, where export growth is forecast to average 10-12 percent a year in the decade to 2030. — SG