U.S. Unlikely to Take Significant Action Against Saudi Arabia

The presumed execution of Saudi Journalist Jamal Khashoggi at the Saudi consulate in Turkey has seriously rattled U.S.- Saudi relations and led to the discussion of sanctions in the U.S. Congress. Even so, the complex relationship between the two countries, and especially the joint effort to contain and weaken Iran, tilt against a significant economic response from the Trump Administration.

Asia’s Fuel Subsidies Not Enough to Support Oil Demand Growth

Hydrocarbon Engineering:

Fuel price increases will outpace Asian governments’ ability to offset them with subsidies, according to ESAI Energy’s recently published Asia Watch. India, Malaysia, and the Philippines have already boosted subsidies for gasoline and diesel and Indonesia could soon follow, with national elections coming in 2019. But weakening local currencies are exacerbating the effects of rising oil prices for consumers in many Asian countries. At the same time, trade tensions between China and the US are eroding regional business confidence and threaten to drag on Asian economic growth next year.

E-15 Impact Limited Near-Term

The E.P.A. will begin the process of allowing sales of E-15 gasoline year-round. Although the waiver will increase ethanol more significantly in the long term, short term demand impacts will be limited by investment requirements and consumer preferences. As a result, ESAI Energy forecasts a high of just 60,000 b/d of additional E-15 sales by 2020, or just 10,000 b/d of additional ethanol blending.

Modest Middle Distillate Growth Despite Mega Refining Projects

From the end of 2018 to early 2019, three refining projects will start operations, adding total crude distillation capacity of 900,000 b/d. ESAI Energy estimates that the resulting increase in refined product output in 2019 will be 140,000 b/d for gasoline, 30,000 b/d for diesel, and 80,000 b/d for jet. This relatively modest growth is due to the petrochemical focus of the new projects as well as lower utilization rates of some other refiners facing tough competition.

Weak Currencies, Trade Tensions to Dent Demand Growth

Increasing subsidies will not fully offset higher fuel prices in most Asian countries in 2019, and weaker currencies and slower economic growth will not help. Transportation fuel demand growth outside of China will decelerate to 300,000 b/d in 2019, after growing by 340,000 b/d in 2018. In China, demand will return to modest growth next year after collapsing in 2018.

Oil Edges Lower in Wednesday Trade

DTN:

Oil futures on the New York Mercantile Exchange nearest to delivery and the front month Brent contract on the Intercontinental Exchange edged lower from Tuesday’s shallowly mixed session ahead of weekly supply data for the United States to be released midmorning, and following bullish statistics released late Tuesday afternoon by the American Petroleum Institute.

There is Enough Crude Supply

Hydrocarbon Engineering:
In its recently published, Global Crude Oil Outlook, ESAI Energy asserts that there will be enough crude oil supply in 2019 as long as there are no significant new disruptions. Even with the estimated loss of 1.1 million bpd of Iranian exports, more crude production from the US, Brazil, UK, Russia and the Arab Gulf producers can offset other declines and still meet demand for crude-derived petroleum products.

China’s Naval Power Grows

Over the last several years we have written about the growing imbalance between U.S. and Chinese dependence on the Persian Gulf for oil. Chinese oil demand growth and U.S. oil supply growth have shifted the importance of the region for both importers. A significant and lengthy disruption in the Persian Gulf could still impact all oil consumers through the price mechanism, but the U.S. economy is now far more insulated from energy disruptions than the Chinese economy. Not surprisingly, China’s naval capabilities have grown considerably to address this vulnerability to the flow of oil and other goods

Slowing Gasoline Demand, Lower Imports

Three of Africa’s biggest OPEC producing countries – Nigeria, Angola, and Libya – will increase their productive capacity by 500,000 b/d in the next six to twelve months. But we expect violence, strikes, and natural decline rates to limit total actual production increases from these three countries to only 75,000 b/d in 2019. Africa’s total production should increase by 150,000 b/d next year to 7.4 million b/d.

Big Capacity Increases, Small Production Gains

Three of Africa’s biggest OPEC producing countries – Nigeria, Angola, and Libya – will increase their productive capacity by 500,000 b/d in the next six to twelve months. But we expect violence, strikes, and natural decline rates to limit total actual production increases from these three countries to only 75,000 b/d in 2019. Africa’s total production should increase by 150,000 b/d next year to 7.4 million b/d.