U.S. LPG Exports to Surge

June marked a low point for North American NGL prices. On the one hand, low outright crude and naphtha prices and sluggish Far East LPG demand conspired to bring Japan propane prices back into the low $30s. Meanwhile, a lack of infrastructure has de-linked North American prices from export netbacks. But soon these bumps in the road will vanish. Enterprise’s new LPG terminal enable will exports to flow more freely. When that happens, strong Asian demand will fuel a surge in U.S. deliveries to that market.

Bakken Output to Reach New Highs

Over the next two years, crude and condensate production from the Bakken will reach record high levels despite a temporary lack of infrastructure to handle gas processing and NGL takeaway. Bakken production is forecast to average 1.4 million b/d this year, and 1.5 million b/d in 2020. Increased rig efficiency and enhanced completion methods are helping the economics outside the core.

New Projects Help Maintain UK Growth

Although heavy maintenance and outages in the third quarter of 2019 will temper UK production growth in the North Sea this year, new projects will help maintain total output of just over 1 million b/d for the next several years. Annual production growth from the UK North Sea will average close to 50,000 b/d in 2019 and 2020. Seven new projects are expected to ramp up through 2020, adding a total 245,000 b/d of new productive capacity. Areas west of the Shetland Islands are seeing the most activity.

Latin America Hits Bottom 2019

ESAI Energy expects the region’s downtrend in operating capacity will turn a corner in 2019. Although maintenance and outages will continue to hinder operating capacity, the continued slow recovery in Mexico’s refineries and the restart of a U.S. Virgin Island refinery early in 2020 will contribute to the first rise in operable capacity and throughput in more than five years.

Petchem Underpins Oil Demand Growth

Soaring output of ethylene and paraxylene in early 2019 has set China’s naphtha demand on a steep upward trajectory. Naphtha use, largely “hidden” within integrated refinery- petrochemical units, will grow by 250,000 b/d and 190,000 b/d in 2019 and 2020, respectively. Among other things, growing use of non-marketed naphtha provides context for Chinese oil demand amid declining transport fuel use.

Middle Distillate Growth Steady

Demand for middle distillates – diesel, jet, and kerosene – will grow by a cumulative 50,000 b/d in the next two years to reach 3.2 million b/d by 2020. Venezuela has been a drag on regional demand while Brazil and several other countries have contributed modestly to fragile growth. Overall, the region’s distillate demand will get a modest boost from bunker gasoil in 2020 due to the IMO sulfur rules.

Undercurrent of Tension Remains in Arab Gulf

Despite his tough talk, President Trump has typically leaned towards isolationism, making him less likely to pursue large scale military intervention. At the same time, the Iranian leadership will be very cautious about escalating conflict in the Gulf. So, the bar for significant conflict in the region is high. Even so, Iran may see domestic or regional political benefits from further small-scale attacks or disruptions. The implicit threat of escalation, therefore, is here to stay.

Station Growth Limits E15 and ULSD Undermines D4 RINS in 2019

E.P.A. finalized a rule providing a waiver for year-round sales. However, slow growth in an already small number of stations selling E15 outside PADD II will hinder sales. Meanwhile, D4 RIN prices will decline in the second half of the year. It will lower compliance costs for refiners in the second half. Significant upside risk remains, though, with the impact of small refinery waivers and recent storms uncertain.