But the margin picture was not so rosy for Singapore refiners, he said. "Things have never looked bleaker for Singapore refiners than they have over the first half of the year," Flannery said.

Complex refining margins in Singapore failed to exceed $1 per barrel for much of the period, and even went negative in June.

In the light of first half 1999 Singapore complex margins of 86 cents per barrel, CSFB lowered its 1999 and 2000 estimates to $1 per barrel from $1.60 and $1.90 respectively. The report said South Koreanrefiners managed to keep their premiums of refining margins over Singapore at a healthy $5.00/$6.00 per barrel.

"While margins in 1999 are unlikely to match last year's heady levels, a steady currency, recovering Korean demand growth, and lower interest rates lead us to see net margins (in South Korea) significantly higher than in 1996 and 1997," Flannery said.

The outlook remained bleak for refiners in Singapore, the Philippines, Thailand and Australia, with new regional supplies set to swamp the effect of higher demand and a reduction in utilisation rates.

Expectations of some sort of mild recovery in refining margins in 2000 now seemed remote after factoring in a new 400,000 bpd condensate splitter in the United Arab Emirates next year. At least half of that output would be channelled to Asia, the report said.

"We see the beginnings of hope coming in a gentle rise in 2001 margins before a strong push up towards mid-cycle levels in 2002, probably overshooting on the upside after that," Flannerysaid.

The new forecast took into account an upward revision to Asian demand estimates, he said.

"But the extent of the oversupply is difficult to escape unless the industry breaks with tradition and starts to rationalise existing capacity," he said.

The region's two largest sources of new supply would have to come from India's Reliance Petroleum plant and Taiwan's Formosa Plastics plant.

India's Reliance 540,000 bpd Jamnagar refinery started up around mid-July and was expected to continue pressuring Asia's refining margins in the second half of the year. Taiwan's 150,000 bpd Formosa Plastics plant was expected to be on stream by year end, with the remaining 300,000 bpd expected by end 2000.

"While we can argue about the exact timing of the smaller plants planned for India in 2002 and 2003, the fact is that by then the market should be able to absorb this extra capacity."

"The problem is in the short term."