Research Highlights

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

Oil Demand Growth Lacklustre for 2019 (see Global Refinery Margins– Issue 48).

  • Our global oil demand growth outlook for 2018 is currently 1.05 million b/d, significantly below the IEA’s projected 1.3 million b/d.
  • We see a slowdown in economic growth limiting potential upside to demand growth this year and next.
  • Should Brent prices next year fluctuate around the $65 or $75/bbl range, the overall effect on demand growth would be limited, still leaving us with the problem of an overall long total liquids balance in 2019.

sample-image-twoOur take on the two most probable scenarios for the upcoming OPEC meeting (see Energy Market Report– Issue 23 November)

  • 1) OPEC essentially maintains current output accepting price slumps.
  • 2) The group cuts strongly in 2019 and keeps 2020 production at a similar level.
  • In the first scenario, crude volumes from the Middle East grow by 500,000 b/d in both 2019 and 2020. The resulting price fall would limit production additions from the US to 500,000 b/d next year and see output only falling in 2020, as shale producer’s reaction to market forces will be delayed by around one year.
  • Should OPEC decide to cut output from the Middle East by an estimated 1.3 million b/d in 2019 and keep supply at that level in 2020, elevated prices would lead to shale production in the US to surge by around 1 million b/d in each of the two coming years.


Global total liquids supply is seen increasingly dominated by US crude and NGLs production (see Benigni on Oil Markets – Issue 08)

  • Policies implemented by the OPEC+ countries or the US are currently the major crude price determinants.
  • Economic slowdown, coupled with strong supply, and forecasts for growing flows in the months ahead, are likely to put pressure on global crude prices.
  • The current situation of oversupply is particularly pronounced on the light ends, a function of growing US shale oil supply and related NGL production ramp-up.
  • It remains to be seen if OPEC+ can win the uphill battle against US shale. If the OPEC+ aims for prices which are far beyond marginal supply/demand indications, potential cuts might become very costly.

sample-image-twoThe US was not the only contributor to weaker-than-initially-expected refinery activity in October (see Crude Oil Barrel– Issue 11

  • Chinese refining strength failed to compensate for more intense turnaround activity in Japan, South Korea, India, and Australia. The wider Asia-Pacific region thus turned into the second-largest contributor to globally weaker run levels.
  • The October downwards revisions have largely been carried over to November.
  • Nonetheless, average crude demand in November is still forecast to increase by 1.7 million b/d m-o-m. It is also expected to start reversing the recent trend of falling refined product inventories and lead to a correction in simple distillation margins.

The exceptional strength in diesel cracks and the high premium to gasoline on a tonne basis could be read a distress signal from the market (see Middle of the Barrel – Issue 10).

  • At the moment, it seems likely that the market will price out more gasoline-focused refineries amid oversupply whilst providing support for middle distillate producers.
  • The current situation, where European gasoline-focused simple refinery margins are in negative territory at a time when diesel-focused ones are in the green seems to indicate the future direction of the market.
  • Therefore, we expect most refineries coming back from maintenance in Europe to be diesel-focused. At the same time, gasoline-focused plants will likely be incentivised to cut runs.

sample-image-twoUS crude stocks continued their rally (see Americas Weekly – Issue 42).

  • Stock builds rose to just under 29 million barrels over the last five weeks, EIA data shows. Only in the week ending 19 October inventories increased by more than 6 million barrels.
  • Main drivers behind the uptick were PADDs 2 and 3. Stock builds at PADDs 1, 2, and 5 remained somewhat close to their respective 5-year levels.
  • Cushing is still shy of usual levels, probably by several weeks of similar builds. Going forward, we see inventory levels there to keep building, amid strong production and limited pipeline capacity to the USGC.

Cushing Balance Points to Builds Over Next 6 Months (see Americas Weekly  – Issue 41)

  • We have modelled crude inflows and outflows at the Cushing hub based on our in-house estimates of in- and out-bound pipeline capacity, regional, refinery demand, and local crude production.
  • From this point on and through H1-2019, we expect the ongoing Permian supply glut to continue pushing crude up to Cushing, driving a general trend towards builds on average, especially in the early part of 2019.
  • We do not expect the fundamental mismatch between inflows and outflows to be remedied before the end of H1-2019, meaning the local discounts in prices at both the Permian Basin and Cushing vs the export market in Houston are expected to remain characteristic of the US WTI market over that period.

We see an emerging strong disparity between the total liquids balance and crude balance (see Market Watch issue 9)

  • Crude demand was at a seasonal high in Q3, outstripping crude and condensate supply by some 800,000 b/d.
  • At the same time, we saw a seasonal high from non-crude supply such as NGLs and other liquids.
  • While crude demand was high, end-user demand was falling behind, which led to a total liquids oversupply of some 1.5 million b/d in Q3.

In our books we see a growing divergence between the crude balance and the balance for core products over the next months (see Crude Oil Barrel Issue 10).

  • While the growing discrepancy usually indicates seasonal demand declines, this year the upcoming cycle seems to be starting early.
  • Changes might not occur as suggested on the chart, but we definitely see the trend as an indication that adjustment is necessary.
  • We would not be surprised to see corrections to margins and softer crude demand going forward.

Shale production is set to play an increasingly bigger role in Russia’s upstream sector (see FSU/CEE Insight – Issue 38)

  • Shale production is forecast to reach 200,000 b/d by the middle of the next decade.
  • Gazprom Neft established a company specialising in research and development of the geological formation. The government supports development plans by Gazprom Neft, Lukoil, and other companies in the Bazhenov area in West Siberia, the world’s biggest shale formation.
  • Russian companies have so far been unable to extract bigger shale volumes, due to lack of technology and difficult geological conditions.