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Singapore: Singapore Petroleum, 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 yesterday.
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.
Singapore Petroleum on Tuesday said second-quarter profit gained 0.6 per cent 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 per cent stake in Singapore Refining with the other partner being Chevron.
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.
Reliance Industries's new plant in Jamnagar, India, may add to fuel supplies and crimp refining margins in future, Lee said. Reliance Petroleum will start operating a 580,000 barrel-a-day refinery by the end of the year.
Emerging markets
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 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.
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