Singapore, March 3

Cheap oil and strong car sales are driving demand growth for gasoline across Asia, threatening to open up the region’s first shortage for the motor fuel in more than 15 years.

Car sales are soaring in China and India, where a combined three million new cars come to market every month, while refineries are shutting down in Australia and Taiwan.

That is expected to open an average annual deficit this year in Asia of 10,000 barrels per day (bpd) of gasoline that could widen to 90,000 barrels bpd by 2017, consultancy FGE said.

A tightening gasoline market would coincide with an expected late 2016 to early 2017 puncture of a global crude glut, lending support to a recovery in oil prices that are still down nearly 70 per cent from mid-2014 levels.

“We expect auto sales in China to grow 6.5 per cent in 2016, improving from 4.6 per cent in 2015,” said Yasmina Serghini, a senior credit officer with ratings agency Moody’s.

The car sales will grow mainly due to the halving of a 10 per cent purchase tax on passenger vehicles with small engines and supportive monetary policy from Beijing, she said.

FGE expects the gasoline supply gap to widen to 160,000 bpd in 2018. Consultancy JBC Energy sees a smaller shortfall of 107,000 bpd in 2018, up from 71,000 bpd next year, pegging total Asian demand for the fuel at nearly 6.8 million bpd in 2017 and almost seven million bpd the following year.

Although analysts expect China’s car sales to slow in 2017 as auto tax break expires, increased sales from past years and strong sales in India are still expected to push up gasoline demand and profit margins for the fuel.

“Gasoline remains the most (profitable) product ... with robust growth seen across all or a majority of the countries in Asia,” said Sri Paravaikkarasu, senior consultant and downstream specialist for Asia with FGE.

Still, though a flip to a deficit is expected this year, Asia for now is mired in oversupply that has left storage tanks filled to the brim.

Gasoline margins dropped below $6 a barrel to near 13-month lows last month, after Chinese exports surged to 880,000 tonnes (7.5 million barrels) in December, nearly double the average monthly shipments for January to November.

“Chinese exports spiked in December as refiners were likely rushing to capture the strong margin and to meet their 2015 export quotas,” said an industry source based in China.

But China’s exports are dropping back again as domestic demand for gasoline grows. January’s exports of the fuel from the world’s second

largest economy fell to a two-month low of about 593,000 tonnes (just over five million barrels).

The drop — cutting availability across the region — comes as demand is set to rise in the northern hemisphere’s so-called summer driving season and during the Muslim festival month of Ramadan in June.

One risk that could still undermine Asian gasoline demand is a regional economic slowdown led by China.

“China made up ... 70 per cent of global gasoline growth (in 2015),” Morgan Stanley said this week in a

research note.