FSU Exporters Back Away from Asia

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.

Light Distillate Too Heavy for Singapore Margins

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.

Iraq’s Capacity Gains Continue

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.

Market Alert: Kazakh Power Transfer Begins

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 Future Still Looks Dark

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.

Project Delays Lower Oil Sands Production

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.