WRAPUP 1-Gaiety at Asia oil traders' bash masks murky outlook

* Partying intensity rises a few notches this year

* Expansion plans, recovery signs lift sentiment

* Oversupply of crude, distillates muddy outlook

By Jennifer Tan

SINGAPORE, Nov 6 (Reuters) - Merry-making at the annual bash for Asia's oil traders notched up this year, lifted by signs of recovery and rising crude prices, but the carousing failed to mask an outlook clouded by chronic oversupply.

Recent signs of an industry comeback have buoyed sentiment: Asia's oil derivatives market saw its best month this year in October in terms of volumes and profits, while energy firms such as Russia's LUKOIL are embarking on regional expansion plans. Oil resumed its climb above $80 a barrel CLc1 this week on positive economic data from the United States, the world's top energy user, though the high prices are deemed unjustified due to bulging global fuel supplies and could strain the economy.

Persistently weak diesel demand and poor margins continue to worry the industry. This has created a huge surplus in distillates, most of which are stored on ships off Europe and the Mediterranean.

"People were partying a lot harder at APPEC this year. The per hour alcohol intake looks like a jet contango curve -- the levels have gone off the charts," said a distillates trader with a regional refiner.

The three-day Asia Pacific Petroleum Conference (APPEC) kicked off on Tuesday with a forum and more than two dozen evening bashes at hotels ranging from the Ritz Carlton to the Four Seasons and the Fullerton.

"But there's still a lot of uncertainty. It's anybody's guess how next year will turn out. The question is: are people drinking to remember or drinking to forget?"

Others were cautiously upbeat. "We're still positive, hopeful, that Asia will be able to shake off the woes plaguing economies in the West," said a regional fuel oil trader.

The return of risk appetite to the Asian oil derivatives market, after more than a year in the doldrums, is a sign of spreading optimism in the industry.

According to anecdotal evidence, banks are more relaxed about giving credit now versus six months ago, counterparties are also more willing to take on credit risks.

One broker said his firm saw its best returns for the year in October, with middle distillates leading with 25 percent more volumes from the average of about 40 million barrels a month, while fuel oil and naphtha saw around 10 percent increases.

Trading or speculative plays, noticeably absent for much of the last 12-15 months, are becoming a common feature again in the last three to six months. [ID:nSP4454]

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