As the Asia-Pacific gasoline surplus grows, the middle distillate surplus will tighten, squeezing gasoline spreads to crude in Singapore, while a tighter distillate balance supports diesel spreads with China as the major factor in both movements
Kazakhstan has achieved gasoline self-sufficiency, which combined with other regional developments push more Russian and Belarusian gasoline into the Atlantic basin and have a bearish impact on gasoline markets.
Russian production growth has led to higher crude exports. Lately, export growth has been in pipeline deliveries to China, but growth will shift to seaborne outflows from Europe.
U.S. sanctions on Iran’s exports of crude oil and condensate came into effect today, with waivers granted to eight of Iran’s traditional customers in Asia and the Mediterranean. It seems the waivers may be a useful negotiating tool for the Trump Administration and, thus, although they expire in 6 months, it is likely they will be extended. Even with these waivers, Iranian exports will still fall by roughly 1.2 million b/d in 2019.
Calls for a cease-fire in Yemen reflect the complicated relationship between the U.S. and Saudi Arabia, which, at least outwardly, took a turn for the worse following the execution of Jamal Khashoggi. Still, opposition to Iran will continue to trump all other issues between these two countries. This does not bode well for Yemen.
Mexico’s throughput fell suddenly this month, suggesting there are even more structural problems with refineries than originally thought. Lower throughput will boost the country’s exportable surplus in the fourth quarter, before falling in 2019 as AMLO has Pemex raise runs.
In 2020, changing contributions from gasoil, gasoline, and fuel oil to refining margins will effect refineries based on geography and profile. Cracking refiners that can upgrade heavier high sulfur material will benefit, while less sophisticated refiners that produce heavier sour grades of crude oil and rely on HSFO bunker demand, will struggle.
Due to U.S. sanctions, Iran will reduce fuel oil exports next year with flows to Asia falling most. Iran’s power sector will consume the excess fuel oil, reversing a multi-year trend in which power plants have replaced fuel oil feedstocks with natural gas. This will contribute to a larger regional deficit of fuel oil, supporting spreads to crude before IMO hits
Sustained growth of NGLs in the period through 2020 will leave LPG struggling to catch up.
After remaining flat this year, Africa’s diesel deficit will grow by 20,000 b/d in 2019 to reach 885,000 b/d as demand growth of more than 40,000 b/d outpaces supply increases.
In Q3, North Sea crude and condensate production remained more or less stable year-on-year after consecutive quarters of declines. Looking to 2019, output will remain flat year-on-year, as Norwegan declines narrow and U.K. growth stalls. But, the startup of Equinor’s Johan Sverdrup megaproject will lead to growth in 2020.
Saudi Arabia accounts for about half of the spare crude oil productive capacity in the Middle East. In the period to 2020, declines at mature fields will offset some planned capacity additions in Saudi Arabia, Kuwait, the UAE, and Iraq. How will this impact the region’s spare productive capacity?
The global supply demand fundamentals over the next two years will be generally balanced with product market weakness building in, later in 2020. Waivers, tankers, and condensate splitters will shape the volume of crude oil Iran will export after the sanctions are imposed, while refiners drive the shift to gasoil blends in the bunker sector due to IMO.
Global capacity will increase by more than 3.5 million b/d by 2020. It will outpace strong IMO-related throughput growth and temper any bullish rise in utilization rates.
After much debate and drama, the chairman of the IMO’s Marine Environment Protection Committee rejected a proposal today to phase in the sulfur regulations through an “experience building phase.” The proposal was vaguely defined in scope and timing and would have created significant uncertainty ahead of the January 2020 start date. Still, ESAI Energy expects the market will phase in the regulations on its own through a combination of waivers and discretionary enforcement, as well as some outright cheating. We expect just under three-quarters of bunker fuel consumed in 2020 to be compliant.