Product Demand Growth Succumbs to Economic Pressures in 2020

OilVoice:

According to ESAI Energy’s recently released Two-Year Global Fuels Outlook, global demand for gasoline, gasoil, jet fuel, kerosene, and fuel oil is expected to rise by a combined 770,000 b/d in 2019, following an increase of just 440,000 b/d this year. This acceleration will be driven primarily by a return to demand growth in China. However, in 2020, a slowdown in global economic growth, in combination with relatively high petroleum product prices, will limit demand growth to 500,000 b/d

Why Trump is going soft on Saudi Arabia: oil and Iran

Yahoo Finance:

Saudi Arabia has been pumping more oil, to help replace the Iranian crude coming off the market. That generates more oil revenue for Saudi Arabia, and keeps oil and gasoline prices stable, which helps Trump, since he won’t have to explain a sudden spike in gas prices as a consequence of his Iran policy. “The Iran sanctions are a real boon to Saudi Arabia, which wants Iran hobbled,” says Sarah Emerson, president of research firm ESAI Energy. “This is a win-win for the U.S. and Saudi Arabia, or at least their two governments.”

Crude-by-Rail Returns Until More Pipelines

Both the Canadian Oil Sands and the Permian Basin face takeaway constraints and discounted prices due to full pipelines. Increased crude-by-rail will be necessary until additional pipeline capacity comes online, and the pace of production will decelerate in the near-term.

After growing by a record 1.4 million b/d in 2018 led by the Permian Basin, total US shale production will increase by an annual average of 680,000 b/d in 2019 and 700,000 b/d in 2020. Output from the Canadian Oil Sands will also slow as investment and project expansions are deferred until new pipelines are built. Oil Sands production will increase by only 60,000 b/d in 2019 and 130,000 b/d in 2020, after growing by over 200,000 b/d this year.

Fuel Demand Growth Succumbs to Economic Pressures

In this month’s Global Fuels Two-Year Outlook, we turn our attention to product markets through 2020, with special attention given to the impact of the IMO’s 0.5 percent sulfur cap on marine fuels, which will be implemented globally in January 2020.

Next year, global demand for gasoline, gasoil, jet fuel, kerosene, and fuel oil is expected to rise by 770,000 b/d, following an increase of just 440,000 b/d this year. This acceleration will be driven primarily by a return to demand growth in China. However, in 2020, a slowdown in global economic growth, in combination with relatively high petroleum product prices, will limit product demand growth to just 450,000 b/d.

Meanwhile, the impact of the IMO sulfur rules will be felt in product markets by October 2019 when companies begin to switch over their tanks. In 2020, MGO demand, consumed directly and in a blend, will reach 1.9 million b/d, up from 800,000 b/d in 2018. Demand for LSFO bunkers will reach 900,000 b/d, up from 300,000 b/d in 2018. HSFO bunker demand will average 1.4 million, down from 2.9 million b/d, with 250,000 b/d consumed legally through scrubbers, the rest through non-compliance. The increases in refinery throughput and yield shifts necessary to meet the surge in gasoil demand will have bearish consequences for other markets, especially HSFO.

In response to the IMO’s sulfur cap on marine fuels, middle distillate spreads to crude will begin to rise sharply toward the end of 2019 and remain wide through 2020. Meanwhile, fuel oil prices, particularly for HSFO, will collapse and the fuel oil discount to crude will remain wide through the forecast period. Gasoline’s premium to crude will remain weak through 2020 after narrowing in 2019 due to an oversupplied market.

Over the next two years, global gasoline and middle distillate trade flows will shift as Europe exports less of the former and imports less of the latter, but these changes will be overshadowed by a dramatic re-ordering of the global fuel oil trade in the wake of the IMO’s 2020 sulfur cap. In 2020, HSFO trade volumes will diminish rapidly, while LSFO trade flows shift to supply adequate bunker blending components to various regions, as detailed in this publication’s Trade Insight.

Brazil Flips Regional Product Demand to Growth

Latin America’s total refined product demand will increase by 90,000 b/d next year to 9.2 million b/d after falling by an average of 80,000 b/d each of the last three years. Much of the demand change stems from one-time events that happened this year and won’t recur, such as a surge in hydrous ethanol consumption in Brazil and a steep drop in Argentina’s fuel oil use.

E15 Will Have Limited Near-Term Impact

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.

Product Export Quotas Suggest Lower Gasoline and Diesel Exports

China’s September crude imports remained unchanged from August at 9 million b/d. In the fourth quarter, ESAI Energy estimates that China’s throughput could boost crude imports by at least 150,000 b/d, based on analysis of refining capacity increases, maintenance, and seasonal utilization. Meanwhile, China’s new product export quotas suggest that gasoline and diesel exports between September and December would both fall by 60,000 b/d, compared to January-August levels.

China Mega-Refineries Barely Impact Diesel Supply

Hellenic Shipping News Worldwide:

China will add 900 000 bpd of crude distillation capacity between late 2018 and early 2019, but China’s overall production of transport fuels will grow less than one might think, according to ESAI Energy’s newly released China Watch. Most notably, ESAI Energy projects China’s overall diesel production could grow by 50 000 bpd or less in 2019. The growth of China’s supply of middle distillate and overall transport fuel output has implications for Asian product markets and China’s least sophisticated independent refineries struggling to remain viable in the domestic market.

China Mega-Refineries Barely Impact Diesel Supply

Hydrocarbon Engineering:

China will add 900 000 bpd of crude distillation capacity between late 2018 and early 2019, but China’s overall production of transport fuels will grow less than one might think, according to ESAI Energy’s newly released China Watch. Most notably, ESAI Energy projects China’s overall diesel production could grow by 50 000 bpd or less in 2019. The growth of China’s supply of middle distillate and overall transport fuel output has implications for Asian product markets and China’s least sophisticated independent refineries struggling to remain viable in the domestic market.

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.