New Quotas Mean Crude Oil Imports will Fall

Based on the analysis of non-state crude import quotas, we estimate that crude oil imports by the non-stateowned sector could decline by 640,000 b/d from 3.4 million b/d in January-June to 2.7 million b/d in the second half of the year. This analysis also suggests that Hengli Petchem will reach high utilization rates in the next few months, while Zhejiang Petchem will not be commercial this year. Overall, this means total crude oil imports should average about 9.3 million b/d for the rest of 2019, having a significant impact on crude oil demand.

Russian Romance with OPEC Blossoms

Russian embrace of OPEC+ is about both the oil price and Russian power. Collaborating with OPEC members has brought Russia much success in terms of its ability to insert itself as a regional powerbroker and otherwise expand its influence in the Middle East. This secondary goal decreases the likelihood of Russia breaking with the Saudis in coordinating production policy anytime soon.

OPEC+ Can Manage 2019, but Maybe Not 2020

Hellenic Shipping News: Weak demand and soft crude oil prices mean that early next week the OPEC+ countries should extend their production restraint another six months. They will be rewarded with higher crude oil prices (unless the trade dispute significantly worsens, or further chaos comes out of the G20 meeting). It would be in the best interests of the group to extend this production restraint again in six months, as the call on OPEC falls further in 2020. But it will be harder to do so because, ceteris paribus, oil prices will be higher, and some of the current overcompliance will be gone, and some undercompliance will have set in. That does not bode well for agreeing to another extension. This will eventually put downward pressure on prices, even with the distillate demand requirements that accompany the IMO.

Yields Begin to Shift from Fuel Oil To Diesel in Japan and South Korea

Although diesel production in Asia Pacific will grow by only 60,000 b/d this year, higher diesel yields driven by IMO sulfur rules have already emerged in Japan and South Korea. This, together with a ramp up of new refineries in Southeast Asia and a potential recovery in China, will boost regional diesel output by 260,000 b/d to 10 million b/d in 2020.

Gasoline Supports Atlantic Basin Margins

The explosion and reported permanent closure of New York Harbor’s largest refinery will be bullish for New York Harbor and Northwest European cracking margins to Brent this summer. The need to replace PADD I gasoline supply during peak demand periods will raise near-term gasoline spreads, supporting higher refining margins in the Atlantic Basin. Gasoline support will be short-lived though, as demand softens beyond the summer.