Private production is creeping up in Mexico, but Pemex’s promised increases look unlikely to materialize. Bad luck and accidents have played a role in some recent declines, but Pemex is struggling to find the funds to raise upstream investment sufficiently to increase production. Mexico’s crude production will average 1.7 million b/d in 2019, down by 100,000 b/d from last year.
Overall refining margins will be bullish in 2020. Gasoil and low sulfur fuel oil spreads to crude will overwhelm the weakness in high sulfur fuel oil and other fuels, initially. These pricing dynamics will be beneficial to refiners at both ends of the complexity spectrum. Light sweet crude refiners will benefit from gasoil and low sulfur fuel strength. At the other end of the spectrum, steep discounts for heavy sour crudes will support margins for refineries that can upgrade the HSFO in these crudes.
After increasing by less than 100,000 b/d last year, combined Middle Eastern production of gasoline and diesel will rise by roughly 350,000 b/d in both 2019 and 2020. This growth will be centered in Saudi Arabia and Iran, and driven by refinery capacity expansions. Significant supply growth and comparatively muted demand growth for these products will lead to a widening of the Middle Eastern diesel surplus and narrowing of the region’s gasoline deficit.
The 400,000 b/d of crude exports most threatened by the intensifying battle around Tripoli may avoid disruption. Haftar’s interest in Tripoli is political and financial power. Attacking these ports would be a distraction and would undermine his own interests. For the months ahead, we forecast Libya’s oil production will remain stable at just under 1 million b/d.
After falling by 250,000 b/d last year, European refinery throughput is slated to remain flat this year at 12.4 million b/d. In 2020, we expect significant IMO-driven year-on-year growth in run rates during the first half of the year to be offset by declines in the latter half of the year such that throughput remains more or less stable on an annual basis.
Sanctions on Venezuela and Iran, the coming IMO specification change, and the likely OPEC action are impacting the global crude oil outlook through 2020.
China petchem investment takes center stage in the outlook for NGLs in 2020
Growth from the Permian is expected to slow down slightly, averaging around 650,000 b/d over the next two years due to subdued productivity gains and investor pressure to rein in spending. This will bring West Texas Light (WTL) production to about 680,000 b/d or about 14 percent of the total. Tremendous pipeline capacity expansion will likely make quality batching easier, but still result in under-utilization out of both the Permian and the Rockies. Meanwhile, further pipeline expansion delays threaten Canadian Oil Sands production.
ESAI Energy estimates that distillation capacity will rise by nearly 1.4 million b/d per annum in 2019 and 2020. The majority of this new capacity is being added in Asia and the Middle East and it will significantly outpace global demand for crude derived products. As a result, it will begin to put pressure on global utilization rates, despite higher throughput expectations linked to IMO. Most new capacity in Asia and the Middle East, including petchem-integrated units in the former, will process medium/heavy crude from the Middle East. This will make it challenging for U.S. exports to further penetrate the market. Among other things, this means U.S. exports will seek to displace competing suppliers at existing refineries.
In 2020, the IMO sulfur cap on marine fuels will usher in significant changes to global fuels demand, pricing, and trade. This month’s Global Fuels Two-Year Outlook highlights our explicit forecast of changes in bunker demand for marine gasoil, HSFO and LSFO and examines the future of product markets more broadly through 2020.
After rising by 160,000 b/d last year, European demand for transport fuels will rise by 100,000 b/d this year to an average of 9.7 million b/d as gasoline and jet fuel demand growth decelerates and residual bunker consumption falls outright. This slowing trend will continue through 2020, when European transport fuel consumption growth grinds to a halt, buffeted by economic headwinds.
China’s crude imports in March declined to 9.26 million b/d due to refinery maintenance season. With maintenance peaking in mid-May, crude imports could slow to around 9 million b/d in the next two months. Meanwhile, weak domestic diesel demand and an adjustment to the export quota for that product suggest diesel exports could rise to 580,000 b/d.
Russian crude exports will reach a multiyear high of 5.7 million b/d in April, 400,000 b/d higher than average exports in the previous 5 months. The jump in exports will encourage more long-haul shipment of Russian crude from European ports to Asia. Extended maintenance at Tuapse, which will result in the loss of an unusually high 600,000 b/d of distillation capacity in April, has triggered these high exports.
Brazil’s diesel demand is set to rise, though domestic and macroeconomic headwinds make the recovery fragile. Refining output won’t keep up, and the import requirement will expand to 220,000 b/d, a 40,000 b/d increase over a typical month last year.
Beijing’s restructuring of freight transport will prevent the country’s diesel demand from growing much in response to an upturn in manufacturing and construction activity. That positions China’s refining sector to produce and export more diesel in response to IMO changes. As a result, China’s diesel surplus will expand to at least 230,000 b/d in 2019.