Singapore Petroleum Says Asian Fuel Demand to Slow

By Nesa Subrahmaniyan

July 30 (Bloomberg) -- Singapore Petroleum Co., the only oil refiner traded on the city state's stock exchange, said Asia's growth in demand for oil products may slow because of cuts in fuel subsidies.

``Demand for refined petroleum products may soften against an expected slowdown of the global economy and a reduction in government subsidies in several Asian countries,'' Chief Financial Officer Lee Chiang Huat said on a conference call in Singapore today.

Vietnam, Malaysia and Indonesia have raised prices of diesel and gasoline in the past two months to cut government expenditure aimed at capping fuel prices and keeping inflation in check. Crude in New York reached an all-time high of $147.27 a barrel on July 11.

Yesterday, Singapore Petroleum said second-quarter profit gained 0.6 percent to S$180 million ($132 million) from a year ago as higher costs and a weaker dollar eroded gains in sales. The company reported a record $13 a barrel profit from processing a barrel of crude into fuels from $9 a year ago.

``Our strong refining margin didn't show up much in our earnings because of higher exploration and production taxes, higher crude processing costs and operating expenses, and a weaker dollar,'' Lee said on the call.

The refiner owns a 50 percent stake in Singapore Refining Co. with the other partner being Chevron Corp. The refinery's processing was about 263,000 barrels a day in the second quarter because of scheduled maintenance at two secondary refining units. It has a built-in capacity of 285,000 barrels a day.

Future Margins

Reliance Industries Ltd.'s new plant in Jamnagar, India, may add to fuel supplies and crimp refining margins in future, Lee said. Reliance Petroleum Ltd. will start operating a 580,000 barrel-a-day refinery by the end of the year.

Still, refiners' earnings from processing crude oil will be supported by demand in China, India, Russia and the Middle East, Lee said.

``Though diesel refining margins are showing some signs of weakness, we think over the next 12 months the strength in Asian refining margins will continue,'' said Sonia Song, energy analyst at Merrill Lynch & Co. in Singapore. ``Fundamentally, it's tight.''

Singapore Petroleum isn't planning any refinery maintenance in the second half of this year, while it's studying investments on upgrading a gasoline processing unit to make cleaner fuels and also upgrade crude oil units to enhance the recovery of mercury, Chief Executive Koh Ban Heng said on the call.

The shares fell as much as 8 cents, or 1.2 percent, to S$6.45, and were at S$6.48 at the midday break in Singapore trading. They have fallen 0.6 percent in the past year, compared with the 16 percent decline in the benchmark Straits Timex Index.

To contact the reporter on this story: Nesa Subrahmaniyan in Singapore at nesas@bloomberg.net.