UK Ouput Growth Outpaces Norwegian Declines

In the next twelve months, UK crude and condensate production is expected to rise by over 100,000 b/d and approach 1.1 million b/d as a number of major new projects ramp up. Meanwhile, Norway’s output is expected to keep falling by an additional 40,000 b/d to an average of roughly 1.5 million b/d. On balance, North Sea supply will rise by roughly 50,000 b/d to 2.7 million b/d,

2020 BBD Target Insulates Biodiesel

A sharp increase in the RFS target volume for biomass-based diesel in 2020 is both surprising and good news for biodiesel producers. Even though more was blended in 2017, small refinery waivers and E15 threaten demand for surplus biodiesel to fill volume deficits in other advanced and conventional biofuel categories. A higher 2020 target ensures biodiesel blending for RFS will remain high

More Severe Iranian Disruption

Later this year, California regulators will vote whether to extend the state’s Low Carbon Fuel Standard(LCFS) from its current expiration in 2020 to 2030. If it passes, renewable diesel would be the biggest winner among biofuels. A shortage of renewable diesel in California would create a strong incentive for producers to build new capacity in the next decade, particularly in feedstock-rich Asia.

Is Europe Ready for Mariner East 2?

For a number of reasons, all eyes will be on Mariner East 2, which will increase the U.S.’s ability to export ethane and LPG to Europe, as it stumbles toward completion. For U.S.-Europe NGL trade, it comes as Europe’s steam crackers are consuming growing volumes of ethane and LPG. However, the development of Europe’s ethane imports continues to fall short of expectations. Despite the Mariner East expansion, it will be surprising if ethane shipments via Mariner East rise to much more than 80,000 b/d six to 12 months from now. On the other hand, the expanded terminal’s LPG capacity will re-route existing LPG exports and be fully utilized. The most critical and far-reaching market development associated with Mariner East 2, however, is the timing and ramp-up of increased LPG exports. As the Global LPG Balance Chapter describes, demand growth outside North America will hit a wall when a lack of new U.S. terminal capacity chokes foreign access to North America’s growing LPG supply.

Oil Demand Returns to Growth

Refined products consumption will return to growth of 180,000 b/d in the next year after shrinking by 40,000 b/d over the past 12 months. Gasoline demand will lead the way with growth of nearly 50,000 b/d, due partly to reconstruction activity in Iraq spurring oil demand. Gasoline imports will still decline regionally, however, with new refining capacity coming online in Saudi Arabia and Iran.

OPEC Agrees to Raise Production

OPEC will start to raise crude oil output this summer, with Saudi Arabia, Kuwait, and the UAE contributing the majority of new production. The increase will be at least 450,000 b/d but could be substantially larger if OPEC attempts to replace more of Venezuela’s lost volumes. Russia and other non-OPEC parties to the November 2016 production deal will also increase output in the next several months.

OPEC Takes Small Step…or Maybe Not

OPEC has agreed to rollback overcompliance with the original production deal of November 2016. This appears to mean an increase of 450,000 b/d among the voluntary over-complying countries, with the bulk coming from Saudi Arabia, Kuwait, and the UAE. However, the communique could also be interpreted as enabling an increase of as much as 1 million b/d, with some members replacing lost volumes from involuntary over-complying countries like Venezuela. At this point, the small step interpretation is more likely.

U.S. Exports to Latin America to Drop

Over the next twelve months, global demand growth for both gasoline and diesel is expected to decelerate. The rapid growth of diesel demand in the first half of 2018, particularly in the United States, is set to diminish as higher interest rates and trade tensions create headwinds for the economy. Economic headwinds in combination with higher absolute prices will also be a drag on gasoline demand growth. In China, an expanded “blue sky” policy on retiring polluting diesel vehicles will shift more freight transport to rail, limiting distillate demand.
Meanwhile, global production of transport fuels is expected to continue accelerating as throughput rises, particularly East of Suez. As a result, global transport fuel market fundamentals will loosen and fuel spreads to crude will weaken globally. Downward pressure on gasoline spreads will be particularly pronounced.

Shrinking Latin American diesel and gasoline deficits will also exert bearish pressure on global product markets. Over the next twelve months, Latin America will absorb less U.S. diesel and gasoline as Latin American deficits of the two products narrow.

North Korea Summit Reduces Tensions for Now

The summit between President Trump and the Supreme Leader of North Korea, Kim Jong-un, has come and gone in a flurry of photographs and a very short and very vague agreed statement. The meeting was largely symbolic and strict U.N. sanctions remain in place, but reduced tensions could eventually create an environment for stronger trade links between North Korea and China, Russia, and South Korea

U.S. Gasoline Surplus Keeps Expanding

After growing by 60,000 b/d year-on-year to an average of 180,000 b/d in the first half of 2018, the U.S.’ exportable gasoline surplus is expected to continue expanding through 2019. This growing surplus will be bearish for the Atlantic Basin gasoline markets and exert downward pressure on spreads to crude as Latin America’s import requirement shrinks and U.S. exporters compete more intensely with European producers to place volumes within the region.