Each time Russia raises production ahead of an OPEC+ deal, there is an increase in exports from European ports, much of which is diverted to Asia. Most recently, FSU deliveries shot up by 500,000 b/d to 2.4 million b/d in late 2018. For most of the first half of 2019, FSU deliveries will be sustained at close to that level. From June through the end of the year, however, we expect a 300,000 b/d decrease.
Despite a new high for Russian diesel production and more hydrocracking capacity in the works, Russian diesel production probably will only grow 50,000 b/d this year. Meanwhile, April-May’s peak maintenance season will temporarily eliminate about 150,000 b/d of output.
This year, Europe’s crude import requirement will shrink by roughly 80,000 b/d to 9.9 million b/d as throughput falls and regional production remains steady. However, even as total imports, particularly from Latin America, the FSU and Africa, fall, inflows of U.S. crude will continue to rise significantly.
As Indian refiners prepare to upgrade facilities in 2019 to meet the nationwide Bharat Stage VI (BS-VI) fuel spec change in April 2020, we expect throughout to stay below 5.2 million b/d. Our forecast for the capacity net of outages suggests throughput will decline in the second and third quarter to 5 million b/d.
ESAI Energy expects most of the active waivers on Iranian sanctions will be renewed, but at a reduced level. This means OPEC+ will need to avoid significant increases for the rest of the year in order to lift and sustain crude prices. Seasonal demand will help as will falling Venezuelan exports.
Price changes favoring NGLs and soaring Chinese ethylene production are all unfavorable for marketed naphtha demand.
Venezuela’s fuel consumption has contracted sharply because of hyperinflation, unemployment, emigration, security concerns, electricity outages, and lack of spare parts for automobiles and other machinery. These trends are set to worsen in the months ahead.
Singapore refining margins were extraordinarily weak early in 2019, dragged down by poor naphtha and gasoline cracks. There will be only a moderate recovery of light distillate in 2019. Consequently, toward the end of 2019 when middle distillate strengthens, benchmark Singapore refining margins will only return to “ordinary” levels. This will prevent runaway throughput growth in Asia.
In late 2019, refiners will increase runs to produce more on-spec bunker fuel, raising the prospect of high utilization rates driving up refining margins. However, due to significant distillation capacity additions, utilization of operable capacity will remain below 88 percent, tempering the bullish impact of higher throughput levels on refining margins.
Saudi Arabia’s transportation fuel demand will stop shrinking in 2019, with modest growth. Meanwhile, sanctions and inflation have hit Iran’s economy hard, and demand this year will remain flat. Regional supply growth of gasoline and diesel will outpace demand growth in 2019, adding some bearish pressure to spreads for both fuels.
In the last few weeks, gasoline spreads to crude have recovered from a months-long period of historic lows and have provided a boost for product markets. However, the outlook for product market remains relatively bearish in 2019.
Iraq’s crude oil productive capacity will increase by as much as 130,000 b/d to reach 4.68 million b/d in 2019, although export constraints mean actual output will grow by less. Iraq’s steady upstream investment and the government’s need for revenues to shore up failing infrastructure mean that Baghdad will continue to overproduce under the OPEC+ deal. Saudi Arabia will continue to bear the heaviest load of cuts.
Kazakhstan President Nursultan Nazarbayev announced his resignation after three decades at the helm. Given the country’s 1.9 million b/d of oil production and participation in the OPEC+ deal, the power transfer draws attention to the potential for instability and policy change. Changes in the leadership and other features of the political landscape, however, point to stability and continuity.
Venezuela’s crude oil production sank to as low as 250,000 b/d during the blackout last week. We estimate monthly production will be 750,000 b/d, down 200,000 b/d from January and February. While Maduro continues to hang on – and we expect he will manage to do so for months, not weeks — the US continues to apply tighter sanctions. Secondary sanctions are on in practice, if not in law. Rosneft and ChinaOil will still lift as much as 250,000 b/d. With throughput low, a sustainable production level over the next couple of months for Venezuela is around 450,000 b/d. Although a political transition does not appear imminent, a clear-eyed look at what would come next shows that production will not rise back above 1 million b/d any time soon.
Planned Canadian Oil Sands projects are being pushed back in response to further delays in pipeline egress and the mandated output cuts by the Alberta provincial government. The outlook for Oil Sands production in 2019 has worsened, with production now forecast to be almost 230,000 b/d lower than last year, averaging 2.7 million b/d. In 2019, lower levels of production will reduce the call on rail, lowering crude-by-rail volumes from the record highs set in the fourth quarter of 2018.