Research Highlights

Here you will find regular updates on some of the most notable research outcomes generated by our team of analysts.

sample-image-twoJet/kero demand growth in the Americas is continuing its robust path of the previous three years (See Americas Weekly– Issue 15

  • In terms of demand per capita, Latin America’s jet consumption remains well below the global average, so there is still quite a lot of room for growth.
  • The International Monetary Fund expects the economic recovery in Latin America and the Caribbean to continue, with GDP increasing by 2% and 2.8% y-o-y in 2018 and 2019, respectively, following growth of 1.3% in 2017. This should support jet demand.
  • Nevertheless, infrastructure and capacity upgrades are necessary to keep up with rising interest in air travel.

The resurrection of the North Sea (see Market Watch – Issue 4)

  • The North Sea is set to add some 350,000 b/d of crude and condensate output by 2023
  • This will come from UK projects in the short term and Norwegian projects in the longer term. A sizeable UK production boost is expected in 2018 and big Norway projects are expected to turn around decline rates towards 2020
  • Lower break even prices due to project reviews and lower costs as well as major discoveries have reversed the declining trend

sample-image-twoGasoline demand likely to react if prices remain high (see Quarterly Refining Outlook– Issue 02)

  • While a strong economy is likely to brush off any meaningful impact of higher prices on diesel or jet demand in the transportation sector as well as on petrochemical feedstock demand, global gasoline consumption is likely to suffer if prices remain elevated
  • If the Brent price were to average around $70 per barrel for the rest of the year, instead of $60 per barrel as per our latest JBC forecast, we estimate that annual gasoline demand growth in 2018 might take a hit to the tune of 100,000 b/d

The US shale production surge is having a substantial quality impact on the global crude slate  (see  Energy Market Report – March 21)

  • In addition to our expectation that 900,000 b/d of light sweet crude will come from the US this year vs last year’s levels, another significant source of additional light sweet crude is Africa, where we see a rebound of 370,000 b/d of primarily Nigerian light sweet.
  • At the same time, the heavy, sour end of the slate is expected to see only modest growth of around 50,000 b/d as the increases in Canadian and Middle Eastern heavy sour supply will be almost entirely cancelled out by the fall in Venezuelan supply.
  • Overall, 2018 will see an increase in the share of light sweet crude in the global crude slate to 24%, more than 1 percent-age point higher y-o-y.

For a review of key North American crude differentials and supply aspects see Benigni on Oil Markets – Issue 02

  • Our base case is for Canadian crude and condensate production to rise above 4.5 million b/d on an annual average basis this year, predicated on a large project list in Western Canada
  • This base case does not include expectations for the Algar Lake Phase 2 project to materialise and also builds in expectations for lower production due to maintenance based on historical trends as well as delays to some minor projects
  • Production could rise to nearly 4.7 million b/d if the full project list came online as planned and there were no other outages due to wildfires or offtake and storage constraints
  • The downside which we see as possible with heavier maintenance and further project delays is likely also limited to keep production just under 4.4 million - which is still growth of 175,000 b/d y-o-y

Where’s the new refining capacity? (see Market Watch – Issue 3)

  • 2018 is not a stellar year in terms of refining capacity additions, we see only about 900,000 b/d of capacity coming online, which is in line with 2017 levels.
  • The bulk of major projects is only expected next year with our current estimate at almost 1.5 million b/d of capacity
  • A very positive scenario would see an additional 2.3 million b/d coming online by the end of the decade, in which case we would of course see refining economics suffer quite a bit

Big Indian refining expansion only post 2020  (see Energy Market Report 5 March 2018)

  • The Indian government’s latest refining expansion plan published in February envisions a 80% increase in refining capacity to around 8.8 million b/d by 2030.
  • From now until 2020, the biggest refinery expansion concerns the Vizakh refinery, taking it to 300,000 b/d from the current 165,000 b/d. The scheduled mechanical completion, according to company information, is July 2020.
  • Although a few debottlenecking projects are also planned, we see only limited upwards potential for crude intake in the next 2 years in India. In our base case, crude intake is only 280,000 b/d higher in 2020 than last year, with demand growth this year alone expected to be around 240-250,000 b/d.
  • Post-2020, we see more upside potential, but major capacity additions are only expected from 2023. Those additions will be very much needed if India is to keep its present volume of exports stable.

The potential for natural gas to replace fuel oil demand in the non-bunker sectors this year could be much greater than assumed in our base case (see Benigni on Oil Markets– Issue 01)

  • After analysing the twelve countries with the highest non-bunker fuel oil demand, we concluded that the downside risk to demand in 2018, on top of our base case, could be as high as 180,000 b/d, stemming largely from China (-40,000 b/d), Iraq (-40,000 b/d), Mexico (-30,000 b/d), and Iran (-20,000 b/d).
  • We also have yet to see what effect higher electricity prices will have on Saudi power demand. Adding this downside risk to our base case, which already sees a y-o-y global demand decline of 200,000 b/d, would push the 2018 balance back into positive territory, thereby undermining fuel oil cracks, as well as taking some of the zing out of global demand growth.

sample-image-twoDiesel’s long term outlook mired by constrained demand potential (see Market Watch – Issue 02)

  • Long term gas oil/diesel demand has more numerous downside risks than upside risks
  • In Europe and North America we are looking at a continued slowdown in gas oil/diesel demand per capital and increasing efficiency in the auto fleet
  • The biggest source of growth in the coming 7 years should of course be India and China, but the outlook for the latter is more uncertain, especially with the government’s increasing focus on environmental clean-up. The shift to EVs in the transportation sector, as well as the broader shift away from an industrial-based economy, will be an increasing drag on gas oil growth in China going forward
  • These factors are part of the basis for a fairly muted demand outlook between now and 2025 for diesel


US Supply Gains Close to Cancelling out Cuts (see Crude Oil Barrel – Issue 02)

  • Increases in US crude supply are squeezing the net negative effect of OPEC/non-OPEC supply cuts to a globally insignificant amount.
  • This is occurring despite over-compliance in the producer group, in many cases due to production or logistical issues (Nigeria, Venezuela) rather than voluntary supply curtailments.
  • Especially given the price increases in recent months, this might leave core OPEC members with easily-accessible spare capacity and some room to raise output in the next couple of months.
  • At the same time, our US supply growth path, though firm, is relatively conservative over the middle portion of 2018.
  • As such we would see risk skewed to the net effect climbing further in the coming months and maybe even climbing into positive territory vs 2016 baselines.