After averaging 2.7 million b/d in 2017 and the first three quarters of this year, North Sea crude and condensate production will remain more or less steady through 2019 as U.K. output growth continues to offset declines in Norway and Denmark. However, the late-2019 startup of the Johan Sverdrup mega-project will return the North Sea to production growth in 2020.
Higher non-OPEC production will reduce the call on OPEC in the fourth quarter of 2018 and in 2019. With the potential restart of Saudi-Kuwaiti neutral zone production and incremental output gains in Iraq, Kuwait, and the UAE, we believe OPEC would be able to produce enough crude to meet global demand, despite plummeting output in Iran and Venezuela.
Mexico’s incoming administration says it will increase Mexico’s crude production by 600,000 b/d in two years to reach 2.5 million b/d by 2021. We see gains this size as out of reach in such a short time frame. Instead, we assess that a $4 billion shot in the arm will help Pemex reverse declines and boost production by closer to 20,000 b/d next year, to 1.88 million b/d, and then by perhaps 100,000 b/d in 2020.
After growing by about 100,000 b/d this year, European distillate demand is expected to rise by a similar amount in 2019 to roughly 8.6 million b/d. But, with domestic production gains outstripping demand, the region’s distillate deficit will narrow for the first time in seven years in 2019, particularly towards the end of the year.…
The relative strength of gasoil to high sulfur fuel oil (HSFO) in Northwest Europe will rise to nearly $40 per barrel by the end of 2019 as new IMO fuel specifications begin to impact the market and pricing. During the final quarter of 2019 and in early 2020, gasoil strength will be bullish for refining margins in Europe and globally. It will create a strong incentive for refiners to raise throughput during the final quarter of 2019.
From NGL pipeline and fractionation contraints and run-away ethane prices in the U.S. Gulf Coast to China’s tariffs on U.S. LPG, uncertainties in the NGL market border on chaos. Nearly six months ago, our monthly updates highlighted robust petchem demand fueling high U.S. LPG exports, cautioning that U.S. LPG terminals will be unable to keep up with export demand. We continue to believe this export constraint will rear its head, at least temporarily, in the next few months. In this month’s Insight chapter, we shift our analysis to NGL takeaway and fractionation capacity constraints and the outlook for
Permian and PADD III NGL production, and especially for Mont Belvieu ethane. Meanwhile, the LPG chapter highlights the latest developments in Chinese and Indian LPG demand and imports. Coincidentally, just as U.S. LPG exports run into constraints, it seems Chinese and Indian LPG imports are cooling off.
The production outlook from the Gulf of Mexico (GOM) is brightening due to stabilizing oil prices and producer confidence in bringing new projects on-time and within budget. New projects will help offset decline from ageing fields and will add roughly 500,000 b/d in new capacity that will lift output over the next 3 years with production increasing by over 140,000 b/d 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.
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.
Latin America’s operable distillation capacity will rebound in 2019, but only slightly and will remain well below historic levels. This will continue to limit regional throughput and refined product output, good news for USGC exporters.
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
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.
India took steps in August to control biofuel trade to protect and expand its biofuels industry and limit costly conventional fuel and crude imports – both goals of its new biofuels policy released in May. The new restrictions on imports and exports are bad news for U.S. ethanol exporters but will create opportunities for other biodiesel exporters in Asia.
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.
A tanker’s collision with a dock at Venezuela’s main export terminal will reduce crude exports in September by up to 400,000 b/d, more than one third of the country’s exports. India could see the largest reductions. Whether this disruption will last into October is unclear.