Indian transportation fuel demand will maintain this year’s pace of growth of 160,000 b/d to reach 2.7 million b/d in 2019. Gasoline and diesel demand growth will both remain solid, though an acceleration is unlikely as the central bank starts to raise interest rates. With refining capacity staying flat, India’s exports of both fuels should fall in 2019.
Driven higher by expected increases in production in Libya, Africa’s crude production should rise by 100,000 b/d to 7.35 million b/d in 2019. This marks an acceleration of growth from this year, when crude production increased only 45,000 b/d.
In 2019, Latin America’s regional crude surplus should average 3.4 million b/d, down 400,000 b/d from 3.8 million b/d in 2017. Over the two years, production will fall by 380,000 b/d, led by the collapse in Venezuela. Meanwhile, regional refinery throughput will rise by 20,000 b/d. Free of the weight of Venezuela, the non-OPEC Latin America balance would rise by 250,000 b/d in the same period.
The Middle East’s exportable surplus of diesel will grow by 90,000 b/d in the second half of 2018 to reach 490,000 b/d, with Europe absorbing most of the increase. New refining capacity in Saudi Arabia and Kuwait will boost the region’s surplus further in the first half of 2019, but stagnating import needs in Europe in that period could lead to an oversupply, putting pressure on diesel spreads to crude.
After falling for the second straight year to 2.6 million b/d in 2018, North Sea crude and condensate production will plateau in 2019 before rising sharply in 2020 as a result of the start-up of Equinor’s Johan Sverdrup mega-project. Led by Norway, North Sea output will continue to grow at an average annual rate of 70,000 b/d from 2020 to 2023, when it will reach 2.9 million b/d.
Following a week during which President Trump met with most of the signatories to the JCPOA, there appears to have been no movement on a concerted approach to Iran that would replace the JCPOA. Moreover, despite somewhat contradictory reporting, the Trump Administration continues to indicate that waivers on sanctions would be limited at best. The loss of Iranian exports continues to look inevitable. This is consistent with the President’s urging of producers to increase output and the discussion of an SPR release.
Despite a growing deficit, in the first half of 2018 European distillate imports remained flat year-on-year at roughly 1.6 million b/d. With regional distillate inventories depleted and the distillate deficit slated to keep expanding, European distillate imports will rise by about 240,000 b/d in the second half of this year and provide bullish support for global markets.
Beijing will look for a way to resume negotiations to discourage the U.S. from imposing $200 billion in tariffs it has threatened, which include HTS Code 27 covering crude oil and refined products. Even so, Chinese importers of crude oil and LPG will increasingly turn to the Middle East to seek out alternatives to U.S.oil supplies.
President-elect Lopez Obrador’s promise to freeze gasoline prices will support gasoline demand, which is on track to grow by 15,000 b/d this year. An increase in refinery throughput will more than offset the impact on Mexico’s imports though. We expect a modest increase in utilization rates in the second half of the year, increasing gasoline supply by 60,000 b/d compared to the first half of 2018 and reducing Mexico’s import requirement by 40,000 b/d.
China is set to add more than 1 million b/d of refining capacity in late 2018/early 2019, translating into substantially higher Chinese exports of gasoline and diesel. This is more than Asia’s main fuel importing countries, in the Southeast, can absorb. The oversupply will put pressure on regional gasoline and diesel spreads to crude next year.
A counter-seasonal increase in U.S. LPG exports reflects the strong response of export demand to competitively priced LPG. High exports also maxed out U.S. export infrastructure, a reminder that soon a lack of LPG export infrastructure will strand propane and butane in the U.S., causing the North American and international markets to decouple – again.
For the past three years, Russian upgrading investment caused fuel oil production to plummet but generated roughly 230,000 b/d of additional VGO for export. In 2018-2019, VGO exports will now fall by the same amount. Meanwhile, the decrease in fuel oil production and exports will be quite small.
Between capacity at new fields and production cuts at mature fields, Russian producers have more than 500,000 b/d of spare capacity, much more than is needed to increase production by the 200,000 b/d implicit
in its latest agreement with Saudi Arabia. If Russia and the Saudis decide to further relax production limits, Russian oil producers will be ready and willing to expand output further.
Haftar and the Libya National Army have declared that NOC East is now the body responsible for handling the export of the crude through five key ports – Ras Lanuf, Es Sider, Zuetina, Hariga, and Brega. Buying Libyan crude from a company other than NOC violates a 2014 UN Security Council Resolution. As a result, exports from these ports have stopped and production is shutting in. NOC confirmed that 850,000 b/d of production will come offline, bringing Libya’s crude production down toward 150,000 b/d. It’s early to say, but we estimate this disruption will last three to six weeks.
The Trump administration is taking an even harder line on Iranian oil exports than the Obama administration did prior to the nuclear deal, resulting in what amounts to an extraordinarily high stakes game of chicken over the next several months. In the longer term, the U.S’s application of unilateral sanctions risks states and coalitions developing alternative methods to purchase crude oil outside of linkages to the U.S. banking system