Lighter Crude and Underused Pipelines

Growth from the Permian is expected to slow down slightly, averaging around 650,000 b/d over the next two years due to subdued productivity gains and investor pressure to rein in spending. This will bring West Texas Light (WTL) production to about 680,000 b/d or about 14 percent of the total. Tremendous pipeline capacity expansion will likely make quality batching easier, but still result in under-utilization out of both the Permian and the Rockies. Meanwhile, further pipeline expansion delays threaten Canadian Oil Sands production.

Capacity Outpaces Demand to 2020

ESAI Energy estimates that distillation capacity will rise by nearly 1.4 million b/d per annum in 2019 and 2020. The majority of this new capacity is being added in Asia and the Middle East and it will significantly outpace global demand for crude derived products. As a result, it will begin to put pressure on global utilization rates, despite higher throughput expectations linked to IMO. Most new capacity in Asia and the Middle East, including petchem-integrated units in the former, will process medium/heavy crude from the Middle East. This will make it challenging for U.S. exports to further penetrate the market. Among other things, this means U.S. exports will seek to displace competing suppliers at existing refineries.

Transport Fuel Demand Plateaus in 2020

After rising by 160,000 b/d last year, European demand for transport fuels will rise by 100,000 b/d this year to an average of 9.7 million b/d as gasoline and jet fuel demand growth decelerates and residual bunker consumption falls outright. This slowing trend will continue through 2020, when European transport fuel consumption growth grinds to a halt, buffeted by economic headwinds.

Market Alert: Russian Crude Exports to Soar

Russian crude exports will reach a multiyear high of 5.7 million b/d in April, 400,000 b/d higher than average exports in the previous 5 months. The jump in exports will encourage more long-haul shipment of Russian crude from European ports to Asia. Extended maintenance at Tuapse, which will result in the loss of an unusually high 600,000 b/d of distillation capacity in April, has triggered these high exports.

Restructuring of Freight Transport at Diesel Demand

Beijing’s restructuring of freight transport will prevent the country’s diesel demand from growing much in response to an upturn in manufacturing and construction activity. That positions China’s refining sector to produce and export more diesel in response to IMO changes. As a result, China’s diesel surplus will expand to at least 230,000 b/d in 2019.

FSU Exporters Back Away from Asia

Each time Russia raises production ahead of an OPEC+ deal, there is an increase in exports from European ports, much of which is diverted to Asia. Most recently, FSU deliveries shot up by 500,000 b/d to 2.4 million b/d in late 2018. For most of the first half of 2019, FSU deliveries will be sustained at close to that level. From June through the end of the year, however, we expect a 300,000 b/d decrease.