Latin Diesel Continues to Flow

Brazil plans to raise throughput this year to regain market share. Its increase, however, will be bound by imports from the Gulf Coast and lower refinery margins from its own price adjustments. We expect refinery throughput to average 1.69 million b/d in 2018, 30,000 b/d more than last year. Meanwhile, demand is growing faster than supply,  so imports will remain high, around 190,000 b/d.

China Lures Overseas Traders for Shanghai Crude Futures

The new Chinese crude oil futures contract on the Shanghai INE was launched last week and attracted significant interest. There are many concerns over the viability of this contract given uncertainties related to foreign exchange and the centralized control of the oil industry. But, China has worked hard through tax regulations to lure foreign traders to the contract. It is too early to know if the contract will evolve into a credible pricing benchmark, but it has a chance to do so, and also drive market reform in China.

China Tariffs Ripple Ethane, Propane and Naphtha Markets

Proposed Chinese tariffs on imports of U.S. polyethylene would negatively affect U.S. ethylene production, ethane demand and ethane prices. Tariffs on propane imports would be disruptive to trade and U.S. market share in China and would even undermine Chinese propane demand. In the context of oil demand, the loss of some ethane and propane demand would lift petchem demand for refined naphtha.

Can the U.S. and Europe Come to an Agreement on Iran?

If Washington refuses to waive sanctions on Iran under the JCPOA, how quickly and comprehensively will it choose to re-impose them – particularly against European entities? The answer to this question is critical to knowing how much oil might come off the market, and when. Europe is currently importing over 750,000 b/d of crude oil from Iran. A 20 percent reduction would equal 150,000 b/d. Yet, with the Arab Gulf producers (and Russia) holding crude oil off the market under their current production deal, there is spare capacity to replace Iranian volumes to Europe, and to most of Iran’s Asian customers. So, the biggest impact of a U.S. rejection of the sanctions waiver may be the end of the OPEC Deal. But, for the moment, negotiations with Europe can still shape the outcome of this issue.

Crude Demand and Iran Support Prices

The pace of global oil demand continues to accelerate this year. Growth will be close to 2.0 million b/d in 2018, although 400,000 b/d of that will be ethane. In 2019, ethane demand growth slows, bringing total growth down to about 1.5 million b/d. If we isolate demand for crude-derived products, it is 1.3 and 1.1 million b/d in 2018 and 2019, respectively. Demand for crude derived products will decelerate in 2019, but not as fast as total oil demand, which includes ethane.

More Canadian Rail or Stock Builds? Both!

The Canadian Oil Sands are forecast to grow by 200,000 b/d in 2018, and with no additional pipeline takeaway coming until late 2019 at best, Canadian bitumen will continue to face steep discounts until more pipeline capacity is brought online. Crude stocks in Canada are on the rise, and the call on rail delivery is expected to increase from an average of 140,000 b/d in 2017 to about 260,000 b/d in the second half of 2018.