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.
Meanwhile, the growing expectation that the Trump Administration will blow up the JCPOA (Iran nuclear deal) in May and slap extraterritorial sanctions on countries who import Iranian crude oil has led to the view that 500,000 b/d (by some estimates) of Iranian crude will be lost from the market by the end of the year. As discussed in our March 27 Market Alert, we believe a loss of 500,000 b/d may be overstating the impact. It depends on several factors including how Europe is treated and responds, whether China elects to take even more crude from Iran, and expected reductions in other Asian importing countries. As of this writing, if President Trump goes ahead with these actions, the volume lost may be closer to 150 to 300,000 b/d. As this Outlook went to press, the situation was quite fluid.
Whichever way events unfold, the Iran issue is supporting Brent prices and will continue to do so at least for a couple more months, if not for the whole year. Mindful of this support, we have raised our Brent price forecast a bit and widened the crude price differentials to Brent. At the same time, the rise in Permian production and the pace of pipeline expansion is pointing towards a bottleneck in takeaway capacity emerging by late summer. While we do not expect the infrastructure bottleneck to be as bad as in late 2017, we do expect wider price differentials between Midland and Cushing versus the USGC.