Sarah Emerson, managing principal at ESAI Energy, and Virginie Maisonneuve, chief investment officer at Eastspring Investments, discuss the attack on the Saudi oil facility over the weekend, oil inventories, what the attack means for markets and where they see prices going. They speak on “Bloomberg Markets: China Open.” (Source: Bloomberg)
Podcast: Sarah Emerson, managing principal of ESAI Energy, joined Capitol Crude to share her global demand outlook (14:14). It paints a challenging picture for US drillers.
China’s crude imports were 9.6 million b/d in June. In the next few months, crude imports should stay around 9.5 million b/d given more refinery maintenance and reduced non-state import quotas.
World Oil: The backlog of DUCs in major U.S. shale plays fell for a fourth straight month, the longest stretch of declines since 2016, as producers came under intense pressure from shareholders to rein in costs while boosting output.
Bloomberg: The fracklog in major U.S. shale plays fell for a fourth straight month, the longest stretch of declines since 2016, as producers came under intense pressure from shareholders to rein in costs while boosting output.
Latin America gasoline demand will decline by 90,000 b/d in 2019 and then remain flat in 2020, but this is not the whole picture, as hydrous ethanol consumption will increase by roughly offsetting amounts. While supply cuts will leave the gasoline deficit unchanged at 1.1 million b/d this year, capacity additions will narrow the import requirement in 2020.
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.
Russia will sustain fuel oil exports at more than 700,000 b/d in 2020 even as global demand collapses. There will be a place in the market for this fuel oil due to its relatively low sulfur content. However, Russian exports will make it challenging for other exporters of fuel oil with higher sulfur content.
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.
As predicted in our Global Crude Oil Outlook last week, both the G20 and OPEC meetings delivered results that are pertinent to the global oil balance. We expect crude oil prices to rise in 2019 as the global balance moves into deficit. The outlook for 2020 is not as rosy. The extension of the OPEC deal by 9 months is helpful, but the difficulties will really come later in 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.
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.
Hydrocarbon Engineering: US and global LPG markets will remain partitioned until new export capacity enables more North American product to reach Asia and other markets, according to ESAI Energy’s newly published ‘Global NGL 12-month Outlook.’
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.
Bloomberg: U.S. crude output soared to new heights in April, highlighting OPEC’s dilemma just days before the producer group meets amid growing geopolitical threats.