Market Alert: OPEC Takes Step to Balance 2019

The OPEC+ decision to cut crude oil output by 1.2 million b/d (from October) should be enough to balance the global oil market for the next six months, and possibly the entire year if extended. Yet, it will not fully counteract the surplus that accumulated in the latter half of 2018. So, while this agreement is clearly supportive of prices, the magnitude of the upside in 2019 will depend on compliance with the agreement, future changes to Iran sanctions waivers, product demand growth meeting expectations, and IMO preparations later in the year.

Market Alert: Alberta to Cut Over-Supply of Crude

In response to a glut in oil supply in the province, the government of Alberta is mandating a temporary production cut of 325,000 b/d. If the mandate is followed to the letter, it would eliminate close to 20 million barrels of inventories by March 2019, roughly the amount of stock build from the past twelve months. Further production curtailments of 95,000 b/d could last until the end of 2019 if stocks do not draw down significantly. We had forecast Canadian production to fall by 30,000 b/d in 2019. In light of these developments, we are accelerating the decline to 90,000 b/d.

New Refining Capacity Weakens Fuel Spreads in Middle East

Diesel and gasoline production in the Middle East will rise next year, as new refining capacity ramps up in Saudi Arabia and Iran, and a damaged unit returns in the UAE. With supply growth of both fuels outpacing demand, the region’s diesel exports will rise and gasoline imports will fall in 2019. This will add bearish pressure to transportation fuel spreads to crude.