European Gasoline Exports Begin to Fall

In the first quarter of 2018, European net exports of finished gasoline and blending components averaged nearly 1.4 million b/d. As Europe’s exportable surplus shrinks, import requirements especially East of Suez narrow, and competition to place gasoline in the Atlantic Basin intensifies due to growing U.S. and Russian surpluses, European exports will fall by more than 100,000 b/d over the next year.

Market Alert: Year-Round E15

The latest talks over the RFS resulted in the announcement that the Trump administration will allow E15 gasoline to be sold year-round. Although policy details remain unclear, this development will move the RIN market into surplus, reduce D6 RIN prices, increase blending of ethanol into the gasoline pool at the expense of petroleum based components, and temper the recent crude-led rise in gasoline prices.

Bearish Refining Margin Pressure Temporary

Plentiful crude, big increases in distillation capacity and decelerating petroleum product demand growth will pressure petroleum product spreads in 2018 and early 2019. The bearish pressure will not last long though. In the second half of 2019, there will be a diesel-driven recovery of refining margins as the market anticipates a spike in demand for gasoil and low sulfur fuel oil.

North Africa Fuel Reforms Stall Growth

Subsidy reform in Egypt means that despite a growing economy, higher prices will leave gasoline demand flat this year, at 170,000 b/d. With no other large engine of growth in the region, North Africa’s total gasoline demand will also remain flat this year, at 400,000 b/d. Meanwhile, a modest increase in supply means the region’s import requirement will shrink slightly to 210,000 b/d.

North Sea Production Drops in 2018 and 2019

After dropping by 40,000 b/d in 2017, North Sea crude and condensate production will continue to fall through 2018 and 2019 as declining Norwegian output outweighs UK supply growth. By 2019, ESAI Energy expects North Sea output to have fallen below 2.7 million b/d, 65,000 b/d less than 2017 supply. However, these North Sea declines will be reversed by the late-2019 startup of the Johan Sverdrup mega-project.

Oil Sands Growth a Casualty of Pipeline Wars

Oil Sands Growth a Casualty of Pipeline Wars: The provincial standoff in the Trans Mountain Expansion (TMX) pipeline dispute will end up in a delay of one year, but the project will go forward with the backing of the federal government. The Line 3 project is also facing an uncertain timeline as regulators review the project. With existing pipelines full, large discounts for Western Canadian crude will remain through 2019 and surplus crude will get to markets by costlier rail.

US Shale Growing at Record Pace (Again): Higher prices are incentivizing increased drilling activity in the US shale basins. Producers are moving out of Tier 1 acreage as more wells are now economic even as inflationary cost pressure has crept in. Total US shale output will grow about 1.2 million b/d year-over-year in 2018, surpassing previous record growth in 2014. The largest gains will continue to be dominated by the Permian Basin, with total US shale growth of 720,000 b/d in 2019.

Global NGL Two-Year Outlook: Making Waves

April’s Global NGL Two-Year Outlook focuses on the naphtha and NGL markets in 2019. The outlook is for robust expansion of NGL supply. Yet, in a market prone to imbalance, the outlook for supply and demand is rather balanced. On the supply side of the ledger, the Middle East, Russia and Australia ensure another big year for NGL supply in 2019 even as growth in the Permian slows from the breakneck pace in 2018. Meanwhile, petchem investment in 2019 features more “investment waves” for NGL-fed capacity. Not only will the U.S. add more ethane crackers, but there will be another “wave” of new Chinese PDH capacity. Consequently, there will be much new petchem demand for ethane and LPG. The flurry of growth in NGLs has bearish implications for naphtha demand and pricing.

Saudi Crown Prince Continues Power Consolidation

Over the last few days, Saudi Crown Prince, Mohammad bin Salman, has arrested or detained individuals
under the charge of corruption. Yet, these efforts are intended to consolidate his power before he becomes
King. Perhaps this consolidation is essential to the successful execution of his Vision 2030, but it does fly in
the face of projecting a transparent, increasingly liberal economy worthy of foreign investment.