Transport Fuel Demand Growth Rebounds in 2019

Next year, global demand for transport fuels will rise by nearly 1.1 million b/d, after increasing by just 800,000 b/d in 2018. This acceleration will be driven by rebounding gasoline and diesel demand growth.

Gasoline demand, which is slated to increase by just 150,000 b/d this year, is expected to rise by 350,000 b/d. The turnaround in the gasoline market will be particularly pronounced in China and Brazil.

Meanwhile, diesel demand growth is forecast to rise to 470,000 b/d in 2019 from 330,000 b/d in 2018 as consumption in China and Saudi Arabia plateaus after collapsing this year.

In spite of rebounding global gasoline demand growth, increases in output, particularly East of Suez, will far outstrip demand gains. This loosening of fundamentals will exert bearish pressure on gasoline

fundamentals and further narrow gasoline spreads to crude in 2019.

Similarly, in spite of accelerating demand growth, the global diesel market will weaken prior to the implementation of the IMO’s 0.5 percent sulfur content cap on marine fuels. As a result, and global

trade flows of diesel will shift.

Refining capacity increases will help the Middle East raise diesel exports to Europe from 350,000 b/d in 2018 to 450,000 b/d in 2019, while U.S. and Asian exporters will trim their deliveries to Europe. With

Europe’s import requirement shrinking, Middle East barrels will add downward pressure on global distillate spreads to crude, particularly in the first half of 2019.

Demand Stable despite Price Threats

Higher oil prices and currency devaluations have increased the cost of fuel imports in Latin America. The worst affected, based on volume and cost, is Brazil’s diesel imports. We expect regional demand growth to flatten out in several key countries in 2019. Other changes will help reverse 2018 slowdowns, however, and regional gasoline and diesel demand will grow by more than 40,000 b/d each next year.

China’s Navy Catching Up

Over the last several years we have written about the growing imbalance between U.S. and Chinese dependence on the Persian Gulf for oil. Chinese oil demand growth and U.S. oil supply growth have shifted the importance of the region for both importers. A significant and lengthy disruption in the Persian Gulf could still impact all oil consumers through the price mechanism, but the U.S. economy is now far more insulated from energy disruptions than the Chinese economy. Not surprisingly, China’s naval capabilities have grown considerably to address this vulnerability to the flow of oil and other goods

Oil Product Demand Growth Outpaces Supply

Asian oil demand growth of 700,000 b/d will outpace regional throughput growth of 300,000 b/d in 2019. Refiners will reduce utilization rates in the first half of 2019 in response to weaker margins and the strong growth of Middle East supplies. Throughput restraint in the first half of the year will lay the groundwork for stronger refining margins in the second half of the year, particularly from middle distillates.

Strategic Stockpiling to Support Crude Imports

China’s strategic petroleum reserve (SPR) depot in Jinzhou officially started filling in August, bringing the existing depot capacity to a total of 249.1 million barrels. The 31.4-million-barrel Zhanjiang depot will not be commissioned until perhaps the second half of 2019. We estimate that crude stocking in depots will add 70,000 b/d to Chinese crude demand between August and the end of 2018 and another 150,000 b/d in 2019.

Refineries Boost Gasoline, Diesel Output

Saudi Arabia’s new 400,000 b/d refinery and Iran’s 120,000 b/d condensate splitter will highlight the region’s refining capacity gains in 2019. New or repaired secondary units in Kuwait and the UAE will also boost transportation fuel output next year. This will translate to lower gasoline imports and higher diesel exports from the Middle East next year, adding pressure on both fuels’ spreads to crude globally

LPG to Stumble

In the second half of 2018, European crude imports will fall by over 400,000 b/d year-on-year in response to slowing regional throughput. In 2019, imports will rebound slightly to an average of 9.9 million b/d, but the origin of these inflows will shift significantly as U.S. and Russian volumes replace Middle Eastern and African crudes.
This month we have begun publishing regional data from our global crude trade flows modeling including history back to January 2016 and forecast through December 2019 (see accompanying excel dataset). In 2019, with shale production decelerating, we expect crude exports to rise to an average of 2.2 million b/d after registering an annual average in 2018 of 1.8 million b/d.

Upgrading Capacity Expands Quickly through 2019

In the second half of 2018, European crude imports will fall by over 400,000 b/d year-on-year in response to slowing regional throughput. In 2019, imports will rebound slightly to an average of 9.9 million b/d, but the origin of these inflows will shift significantly as U.S. and Russian volumes replace Middle Eastern and African crudes.
This month we have begun publishing regional data from our global crude trade flows modeling including history back to January 2016 and forecast through December 2019 (see accompanying excel dataset). In 2019, with shale production decelerating, we expect crude exports to rise to an average of 2.2 million b/d after registering an annual average in 2018 of 1.8 million b/d.