Is Market Ready for Mariner East 2?

OilVoice:
Any delay to the Mariner East 2 project would impact LPG markets from Applachia to Asia, according to ESAI Energy’s analysis of the Mariner East expansion’s impact on U.S. NGL exports. In contrast, ethane exports are emerging much more slowly, according to ESAI Energy’s newly released Global NGL Outlook.

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

Hellenic Shipping News:
OPEC has agreed to rollback overcompliance with the original production deal of November 2016. This appears to mean an increase among the voluntary over-complying countries of 450,000 b/d 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.

Kazakh Growth Hits Brakes

Kazakhstan’s production growth will slow from 175,000 b/d last year to about 70,000 b/d this year and 40,000
b/d in 2019. Due to Kazakhstan’s slowing production growth, overall FSU production will increase by only 60,000 b/d this year. In 2019, the continued deceleration in Kazakhstan means the prospects for FSU production growth will hinge on Russia’s role in the OPEC+ deal. In that country, the Kremlin’s consideration of an agreement to loosen restrictions signals that political leaders are aligning more closely with producers who are eager to raise output.

Rising medium, heavy refiner demand pushing OPEC deal to an end

Oil and Gas Journal:
The rise in medium and heavy refiner demand was already pushing the production-cut agreement among members of the Organization of Petroleum Exporting Countries as well as some non-members towards an end by 2019, ESAI Energy points out in its May Global Crude Oil Outlook. The US request for more crude oil and apparent willingness of Saudi Arabia and Russia to respond provides additional rationale.

North Sea Output Rises

Over the next twelve months North Sea crude and condensate production will increase by about 30,000 b/d to an average of over 2.7 million b/d, after falling by roughly 100,000 b/d in the previous twelve months. This recovery will be driven by the U.K., where output growth is slated to accelerate. Nevertheless, on a calendar year basis North Sea output will fall marginally in both 2018 and 2019.These developments are the most public display of substantial change underway, which we wrote about last month. For a number of reasons, OPEC and Russia will likely raise production, although maybe not until the end of the year. Meanwhile, U.S. shale producers show no signs of slowing down. So, the market is caught between geopolitical events that can be read as bullish and supply/demand developments that can be read as bearish. We believe the supply/demand developments will generally guide the market to lower prices by 2019. Shale producers will eventually have to take a breath, and that will temper the price decline in 2019. In other words, this is not 2014 all over again, so not quite deja vu.

Not Quite Déjà Vu

Geopolitical developments have been center stage. The continued implosion of Venezuela, and its impact on the oil producing sector is striking. New U.S. sanctions following Maduro’s reelection will only make things worse for producers. The implications of U.S. withdrawal from the Iran nuclear deal are still shaking out. The response of OPEC, to officially discuss higher output in June, underscores the transition the global oil market has begun. A little further afield, trade talks with China, and a possible summit between the U.S. and North Korea will keep the global economy guessing.
These developments are the most public display of substantial change underway, which we wrote about last month. For a number of reasons, OPEC and Russia will likely raise production, although maybe not until the end of the year. Meanwhile, U.S. shale producers show no signs of slowing down. So, the market is caught between geopolitical events that can be read as bullish and supply/demand developments that can be read as bearish. We believe the supply/demand developments will generally guide the market to lower prices by 2019. Shale producers will eventually have to take a breath, and that will temper the price decline in 2019. In other words, this is not 2014 all over again, so not quite deja vu.