President-elect Lopez Obrador’s promise to freeze gasoline prices will support gasoline demand, which is on track to grow by 15,000 b/d this year. An increase in refinery throughput will more than offset the impact on Mexico’s imports though. We expect a modest increase in utilization rates in the second half of the year, increasing gasoline supply by 60,000 b/d compared to the first half of 2018 and reducing Mexico’s import requirement by 40,000 b/d.
China is set to add more than 1 million b/d of refining capacity in late 2018/early 2019, translating into substantially higher Chinese exports of gasoline and diesel. This is more than Asia’s main fuel importing countries, in the Southeast, can absorb. The oversupply will put pressure on regional gasoline and diesel spreads to crude next year.
A counter-seasonal increase in U.S. LPG exports reflects the strong response of export demand to competitively priced LPG. High exports also maxed out U.S. export infrastructure, a reminder that soon a lack of LPG export infrastructure will strand propane and butane in the U.S., causing the North American and international markets to decouple – again.
For the past three years, Russian upgrading investment caused fuel oil production to plummet but generated roughly 230,000 b/d of additional VGO for export. In 2018-2019, VGO exports will now fall by the same amount. Meanwhile, the decrease in fuel oil production and exports will be quite small.
Between capacity at new fields and production cuts at mature fields, Russian producers have more than 500,000 b/d of spare capacity, much more than is needed to increase production by the 200,000 b/d implicit
in its latest agreement with Saudi Arabia. If Russia and the Saudis decide to further relax production limits, Russian oil producers will be ready and willing to expand output further.
Haftar and the Libya National Army have declared that NOC East is now the body responsible for handling the export of the crude through five key ports – Ras Lanuf, Es Sider, Zuetina, Hariga, and Brega. Buying Libyan crude from a company other than NOC violates a 2014 UN Security Council Resolution. As a result, exports from these ports have stopped and production is shutting in. NOC confirmed that 850,000 b/d of production will come offline, bringing Libya’s crude production down toward 150,000 b/d. It’s early to say, but we estimate this disruption will last three to six weeks.
The Trump administration is taking an even harder line on Iranian oil exports than the Obama administration did prior to the nuclear deal, resulting in what amounts to an extraordinarily high stakes game of chicken over the next several months. In the longer term, the U.S’s application of unilateral sanctions risks states and coalitions developing alternative methods to purchase crude oil outside of linkages to the U.S. banking system
In the next twelve months, UK crude and condensate production is expected to rise by over 100,000 b/d and approach 1.1 million b/d as a number of major new projects ramp up. Meanwhile, Norway’s output is expected to keep falling by an additional 40,000 b/d to an average of roughly 1.5 million b/d. On balance, North Sea supply will rise by roughly 50,000 b/d to 2.7 million b/d,
A sharp increase in the RFS target volume for biomass-based diesel in 2020 is both surprising and good news for biodiesel producers. Even though more was blended in 2017, small refinery waivers and E15 threaten demand for surplus biodiesel to fill volume deficits in other advanced and conventional biofuel categories. A higher 2020 target ensures biodiesel blending for RFS will remain high
Later this year, California regulators will vote whether to extend the state’s Low Carbon Fuel Standard(LCFS) from its current expiration in 2020 to 2030. If it passes, renewable diesel would be the biggest winner among biofuels. A shortage of renewable diesel in California would create a strong incentive for producers to build new capacity in the next decade, particularly in feedstock-rich Asia.
Africa’s refinery throughput will grow by only 60,000 b/d this year to 2.2 million b/d and will remain flat next year. With crude production growth set to outstrip throughput, Africa’s exportable crude surplus will rise to 5.2 million b/d in 2019.
For a number of reasons, all eyes will be on Mariner East 2, which will increase the U.S.’s ability to export ethane and LPG to Europe, as it stumbles toward completion. For U.S.-Europe NGL trade, it comes as Europe’s steam crackers are consuming growing volumes of ethane and LPG. However, the development of Europe’s ethane imports continues to fall short of expectations. Despite the Mariner East expansion, it will be surprising if ethane shipments via Mariner East rise to much more than 80,000 b/d six to 12 months from now. On the other hand, the expanded terminal’s LPG capacity will re-route existing LPG exports and be fully utilized. The most critical and far-reaching market development associated with Mariner East 2, however, is the timing and ramp-up of increased LPG exports. As the Global LPG Balance Chapter describes, demand growth outside North America will hit a wall when a lack of new U.S. terminal capacity chokes foreign access to North America’s growing LPG supply.
Refined products consumption will return to growth of 180,000 b/d in the next year after shrinking by 40,000 b/d over the past 12 months. Gasoline demand will lead the way with growth of nearly 50,000 b/d, due partly to reconstruction activity in Iraq spurring oil demand. Gasoline imports will still decline regionally, however, with new refining capacity coming online in Saudi Arabia and Iran.
OPEC will start to raise crude oil output this summer, with Saudi Arabia, Kuwait, and the UAE contributing the majority of new production. The increase will be at least 450,000 b/d but could be substantially larger if OPEC attempts to replace more of Venezuela’s lost volumes. Russia and other non-OPEC parties to the November 2016 production deal will also increase output in the next several months.
OPEC has agreed to rollback overcompliance with the original production deal of November 2016. This appears to mean an increase of 450,000 b/d among the voluntary over-complying countries, with the bulk coming from Saudi Arabia, Kuwait, and the UAE. However, the communique could also be interpreted as enabling an increase of as much as 1 million b/d, with some members replacing lost volumes from involuntary over-complying countries like Venezuela. At this point, the small step interpretation is more likely.