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.

Exemptions and Waivers Likely to Shape Rift between US and Europe

Europe has signaled that the rift with the U.S. over Iran is significant even if both sides would like to see change in Iranian behavior. It is unclear how this rift will play out with regard to sanctions on European companies doing business with Iran, especially those buying oil. Both sides are likely to take stands on sanctions in principle, but then negotiate a series of individual time or condition-based exemptions or waivers. This may limit any reduction in European oil imports, even without a Saudi guarantee to make up a shortfall.

What’s Next for Iran

Following President Trump’s decision to withdraw the United States from the JCPOA, the response of Iran, Europe, Russia and China over the next several weeks will be closely watched. The U.S. and Europe are likely to continue discussions regarding joint action on Iran and the imposition of secondary sanctions on European companies. Whether China, Russia and, one day, Iran can be brought back to the negotiating table will depend on statements, actions and likely exogenous events over the wind down period. 

Hedges Limit Shale’s Gains From Oil Price Upside

Energy Intelligence:
After pressure from the investment community, many US independent Shale producers aggressively hedged 2018 production in 2017 in order to ensure or slightly improve their capital position.  Those hedges are now limited the upside of US Shale Producers.  Please read ESAI Energy’s Elisabeth Murphy’s interview with Energy Intelligence’s Deon Daugherty.