Gasoline Demand Falls Again

Regional gasoline demand is set to decrease for the third year in a row in 2019. Eating into fuel demand are once again Venezuela’s economic collapse and, to a lesser extent, Brazil’s hydrous ethanol. The rest of the region will not see gasoline demand rise either. Latin America gasoline demand will fall by 100,000 b/d, from 2.5 million b/d in 2018 to 2.4 million b/d for 2019 and 2020.

Up to 60,000 b/d of Diesel Exports with New Quotes

We expect record-high crude imports of 10.6 million b/d in April to be a one-off event due to stocking before the end of the Iranian oil waivers. In the next two months, crude imports could fall below 10 million b/d given more capacity loss during maintenance, as ESAI Energy’s refinery-level research shows. Meanwhile, Beijing’s second batch of quotas suggest exports could be as high as 390,000 b/d for gasoline, 600,000 b/d for diesel, and 590,000 b/d for jet between now and October.

Will Iran Retaliate?

As the U.S. deploys military assets to the Arab Gulf region, and continues to increase the pressure on Iran, will Iran retaliate? Closing the Straits of Hormuz is what first comes to mind, but that step would not really help Iran beyond showing its resistance to the U.S. and its allies in the Gulf. Moreover, it can be overcome by a U.S. military response. Cyber-attacks on its neighbors, especially their oil facilities, would be more subtle and deniable. As Iran’s economy deteriorates, the likelihood of some form of retaliation is growing.

Upgrading Investment Slows in Face of IMO

Vertically-integrated oil companies’ acquisitions of struggling independent refineries will avert a contraction of Russian distillation capacity. However, the demise of New Stream is just one more development dampening the prospects for the addition of upgrading capacity by the time new IMO regulations take effect. A maximum of two hydrocrackers will enter into operation by the end of 2019. For many refiners, adapting to IMO will consist of the vacuum units already in place.

Global LPG Market to Look to US in 2019

Hellenic Shipping News: Renewed demand growth in China and reduced exports from the Middle East and Russia will shape the outlook for the international LPG market in 2020, according to according to ESAI Energy’s newly published Global NGL Two Year Outlook. The implications are bullish for U.S. exporters, who can take advantage of opportunities to place more of North America’s excess LPG in key export markets.

Market Alert: Contaminated Oil Upends Russian Crude Flows

The contamination of Russian oil will cause Druzhba exports to fall in May-June and possibly beyond. Normally, the Spring maintenance season leads to a spike in Russia’s overall crude exports, but the disruption is preventing that spike in April-May. April’s 5.4 million b/d of overall exports were a little higher than in the first quarter average, and we tentatively expect Russia to maintain exports at that level in May. To compensate for lower Druzhba flows, we believe Russia will increase seaborne exports, especially from the Black Sea.

OPEC+ Cuts Mean Room to Replace Iran

According to preliminary estimates, OPEC countries produced just under 25.4 million b/d of crude oil in April 2019, roughly 40,000 b/d less than in March. This marked the second consecutive month, in which OPEC cuts were 800,000 b/d in excess of the pledged amount. This represents considerable spare capacity to replace lower Iranian exports. In May and June, OPEC+ will meet to discuss and then decide whether to abandon this production restraint. The members may try to keep the structure of the agreement but raise production as the Iran situation becomes clear.

India Leads Diesel Recovery While China’s Demand Keeps Shrinking

In 2019, general elections in India will contribute to the country’s robust demand growth of transport fuels. Despite Beijing’s stimulus, diesel demand in the first quarter collapsed to a decade-low and may decline by 100,000 b/d this year. But strong demand in India and a boost from IMO will more than offset the weakness in China’s inland diesel, resulting in an overall diesel growth of 100,000 b/d in Asia.

Mexico’s Crude Production Declines Again

Private production is creeping up in Mexico, but Pemex’s promised increases look unlikely to materialize. Bad luck and accidents have played a role in some recent declines, but Pemex is struggling to find the funds to raise upstream investment sufficiently to increase production. Mexico’s crude production will average 1.7 million b/d in 2019, down by 100,000 b/d from last year.

Europe’s Hydroskimming Refiners Eagerly Await 2020

Overall refining margins will be bullish in 2020. Gasoil and low sulfur fuel oil spreads to crude will overwhelm the weakness in high sulfur fuel oil and other fuels, initially. These pricing dynamics will be beneficial to refiners at both ends of the complexity spectrum. Light sweet crude refiners will benefit from gasoil and low sulfur fuel strength. At the other end of the spectrum, steep discounts for heavy sour crudes will support margins for refineries that can upgrade the HSFO in these crudes.

Gasoline and Diesel Production Surges Through 2020

After increasing by less than 100,000 b/d last year, combined Middle Eastern production of gasoline and diesel will rise by roughly 350,000 b/d in both 2019 and 2020. This growth will be centered in Saudi Arabia and Iran, and driven by refinery capacity expansions. Significant supply growth and comparatively muted demand growth for these products will lead to a widening of the Middle Eastern diesel surplus and narrowing of the region’s gasoline deficit.