"The region should experience a bad year in 2000, much like 1999, but the seeds for recovery will have been sown and margins should start to improve at some point during 2000, probably towards the end of the year," analyst Mark Flannery said.

Taking into account a slightly more positive demand outlook, CSFB forecast Asia refining margins for 1999 and 2000 to be $1.20 per barrel, up marginally from its earlier forecast of $1.00. But that was still a far cry from the average margins of $3.50 per barrel seen in 1990-1997, when the region had a structural deficit of refined products, the report said.

In Singapore apart from a brief rally in August, complex margins have remained at $1.00-$1.50 this year, it said. This was "a level at which most refiners cannot break even at the profit and loss level, never mind meet their cost of capital," Flannery said.

In terms of Asian oil demand, CSFB expected growth of 5,20,000 barrels per day in 1999, or 2.7 per cent higher from 1998. It saw 2000 demand growing by 651,000 bpd, or up 3.3 per cent from 1999. The growth expectations for this year were higher compared with CSFB's forecast in July of a 1999 Asia demand growth of 5,00,000 bpd. India and South Korea would be the main drivers of the stronger demand growth due to firm economic recovery, it said.

"At the beginning of the year regional demand growth hopes were virtually all resting on China, which had escaped the worst of the Asian economic crisis," Flannery said.

"However, the two smallest members of the Big Four -- India and South Korea -- are now expected to provide much of the region's oil demand increment both this year and next," he said. Japan and China were the other two countries in the Big Four.

CSFB said South Korea oil demand was expected to grow eight per cent this year, tapering off slightly to six per cent in 2000.