Will Iraq Resist Iran’s Example

As more information comes to light about Iran’s brutal crackdown on protests triggered by an increase in gasoline prices, developments there signal what may yet happen in Iraq where the government’s response to protests has been mixed. On one hand, the Iraqi government has conceded the resignation of the Prime Minister. On the other hand,…

Protests in Iraq Different this Time

Iraq’s southern Shiites protest almost annually in Iraq, lamenting their “stolen country” due to Iranian influence and overall poor Iraqi governance. This time around, the government has responded violently and, as casualties have mounted, the protests have grown. This has created an especially delicate situation. How things unfold from here will determine the stability of…

Iran is Not Finished

While gains against Saudi Arabia in Yemen are positive in terms of regional influence, Tehran needs sanctions relief. It has been carefully ratcheting up its attacks on oil production and exports in the hope of signaling its capabilities and resolve. So far, it has not produced the desired results – some sort of bending on…

Iran Slowly Turns Up the Heat

Iran’s outrage over U.S. sanctions has led to a protracted tanker conflict with the U.K. and continued backtracking on the nuclear deal. It is unclear where the red-lines are for Iran or states with military forces in the region. Tehran will continue choosing targets just short of what they perceive to be the level that…

Trump Statement Not Oil Policy

Many in the oil patch have pointed to President Trump’s recent statement on Saudi Arabia as a signal to Saudi Crown Prince Mohammad bin Salman (and the world), absolving the prince of guilt for the execution of Jamal Khashoggi and somehow setting up a quid pro quo that requires the Saudis to facilitate President Trump’s perceived preference for low oil prices. That is far too oil-centric an interpretation. President Trump’s statement is for the American people and his own foreign policy team. He wants the focus back on Iran, and knows Saudi Arabia is key to his policies with regard to Iran, not to mention China and Russia. The oil market should resist the temptation of seeing this statement as oil policy. The Saudis still have considerable leeway to pursue their own production policy, notwithstanding President Trump’s oil price tweets.

Fuel Demand Growth Succumbs to Economic Pressures

In this month’s Global Fuels Two-Year Outlook, we turn our attention to product markets through 2020, with special attention given to the impact of the IMO’s 0.5 percent sulfur cap on marine fuels, which will be implemented globally in January 2020.

Next year, global demand for gasoline, gasoil, jet fuel, kerosene, and fuel oil is expected to rise by 770,000 b/d, following an increase of just 440,000 b/d this year. This acceleration will be driven primarily by a return to demand growth in China. However, in 2020, a slowdown in global economic growth, in combination with relatively high petroleum product prices, will limit product demand growth to just 450,000 b/d.

Meanwhile, the impact of the IMO sulfur rules will be felt in product markets by October 2019 when companies begin to switch over their tanks. In 2020, MGO demand, consumed directly and in a blend, will reach 1.9 million b/d, up from 800,000 b/d in 2018. Demand for LSFO bunkers will reach 900,000 b/d, up from 300,000 b/d in 2018. HSFO bunker demand will average 1.4 million, down from 2.9 million b/d, with 250,000 b/d consumed legally through scrubbers, the rest through non-compliance. The increases in refinery throughput and yield shifts necessary to meet the surge in gasoil demand will have bearish consequences for other markets, especially HSFO.

In response to the IMO’s sulfur cap on marine fuels, middle distillate spreads to crude will begin to rise sharply toward the end of 2019 and remain wide through 2020. Meanwhile, fuel oil prices, particularly for HSFO, will collapse and the fuel oil discount to crude will remain wide through the forecast period. Gasoline’s premium to crude will remain weak through 2020 after narrowing in 2019 due to an oversupplied market.

Over the next two years, global gasoline and middle distillate trade flows will shift as Europe exports less of the former and imports less of the latter, but these changes will be overshadowed by a dramatic re-ordering of the global fuel oil trade in the wake of the IMO’s 2020 sulfur cap. In 2020, HSFO trade volumes will diminish rapidly, while LSFO trade flows shift to supply adequate bunker blending components to various regions, as detailed in this publication’s Trade Insight.

Brazil Flips Regional Product Demand to Growth

Latin America’s total refined product demand will increase by 90,000 b/d next year to 9.2 million b/d after falling by an average of 80,000 b/d each of the last three years. Much of the demand change stems from one-time events that happened this year and won’t recur, such as a surge in hydrous ethanol consumption in Brazil and a steep drop in Argentina’s fuel oil use.

E15 Will Have Limited Near-Term Impact

The E.P.A. will begin the process of allowing sales of E-15 gasoline year-round. Although the waiver will increase ethanol more significantly in the long term, short term demand impacts will be limited by investment requirements and consumer preferences. As a result, ESAI Energy forecasts a high of just 60,000 b/d of additional E-15 sales by 2020, or just 10,000 b/d of additional ethanol blending.

Product Export Quotas Suggest Lower Gasoline and Diesel Exports

China’s September crude imports remained unchanged from August at 9 million b/d. In the fourth quarter, ESAI Energy estimates that China’s throughput could boost crude imports by at least 150,000 b/d, based on analysis of refining capacity increases, maintenance, and seasonal utilization. Meanwhile, China’s new product export quotas suggest that gasoline and diesel exports between September and December would both fall by 60,000 b/d, compared to January-August levels.