After rising by 160,000 b/d last year, European demand for transport fuels will rise by 100,000 b/d this year to an average of 9.7 million b/d as gasoline and jet fuel demand growth decelerates and residual bunker consumption falls outright. This slowing trend will continue through 2020, when European transport fuel consumption growth grinds to a halt, buffeted by economic headwinds.
China’s crude imports in March declined to 9.26 million b/d due to refinery maintenance season. With maintenance peaking in mid-May, crude imports could slow to around 9 million b/d in the next two months. Meanwhile, weak domestic diesel demand and an adjustment to the export quota for that product suggest diesel exports could rise to 580,000 b/d.
Russian crude exports will reach a multiyear high of 5.7 million b/d in April, 400,000 b/d higher than average exports in the previous 5 months. The jump in exports will encourage more long-haul shipment of Russian crude from European ports to Asia. Extended maintenance at Tuapse, which will result in the loss of an unusually high 600,000 b/d of distillation capacity in April, has triggered these high exports.
Brazil’s diesel demand is set to rise, though domestic and macroeconomic headwinds make the recovery fragile. Refining output won’t keep up, and the import requirement will expand to 220,000 b/d, a 40,000 b/d increase over a typical month last year.
Beijing’s restructuring of freight transport will prevent the country’s diesel demand from growing much in response to an upturn in manufacturing and construction activity. That positions China’s refining sector to produce and export more diesel in response to IMO changes. As a result, China’s diesel surplus will expand to at least 230,000 b/d in 2019.
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.