Research Highlights

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

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US crude net imports have fallen off a cliff recently, which could have a knock-on effect on average US crude intake density (see Americas Weekly – Issue 7).

  • US crude net imports have fallen off a cliff in recent weeks and were last seen standing below 4 million b/d for the first time in at least five years as imports fell 900,000 b/d w-o-w over the week ending 8 February (EIA).
  • The sharp drop-off in net imports suggests that higher volumes of light, sweet shale crude are available to local refiners currently looking to offset the effect of recent sanctions imposed on Venezuela.
  • Higher throughput of light, sweet crude at the margin in the US refining complex carries with it some additional implications, including its potential to further lighten the already-lightening regional crude slate, thereby doing little to ease pressure on ongoing weakness in light ends.

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Additional light crude runs in the US might remain in check going forwards, due to technical limitations (see Market Watch – Issue 02).

  • The OPEC+ cuts add some further pressure to medium-sour imports to the US which combined with the observed price strength in the very heavy segment speak against a quick fix to the refinery conundrum in the US.
  • A potential rebalancing of the gasoline/naphtha markets might be in the cards for the months ahead with gasoline supply in the US set to decline in the months ahead.
  • In a rather unusual turn of events, we might see US crude intake falling by some 275,000 b/d y-o-y over 2019 due to technical and economical replacement issues of heavy Venezuelan crude and the gasoline weakness already in place.

sample-image-twoWe have seen jet/kero stocks at PADD-1 over January thus far trending significantly lower y-o-y, with a supply-side response yet to emerge, despite strong price signals in the region (see Americas Weekly– Issue 5

  • At PADD-1, the seat of recent tightness in jet/kero inventories, stocks settled over the week ending 25 January some 2 million barrels lower y-o-y (-20%), after a short-lived rebound the week prior.
  • Although jet continues to price at a healthy premium to ULSD at the NYH, we have yet to see any real supply-side response, suggesting the brief relief in inventory tightness was thanks to intra- and internationally sourced arb inflows in recent days.
  • The arb window from NWE to the NYH has narrowed but for now remains open, which could provide some further relief for PADD-1 stocks, even should refiners fail to react to current price signals.

We see a relatively tight crude balance over the next 2-5 months (see Energy Market Report – Issue 23 January).

  • Oversupply in the peak spring maintenance is expected to remain far from the levels seen last autumn or in Q2-2018.
  • The removal of significant volume of Middle Eastern crude, as well as the sizeable volume of capacity additions are seen as the main drivers behind the balance tightness.
  • Chinese crude buying remains the major unclear factor in the equation, with November and December implied Chinese crude stock build exceeding anything seen over the past few years.

sample-image-twoThe global crude slate is set to become significantly lighter in 2019 (see (see Global Refinery Margins – Issue 3).

  • Iran’s output is set to decline by 900,000 b/d over H1-2019, compared to H2-2018, with exports seen dropping by approximately the same amount due to the US sanctions.
  • The bulk of OPEC+ cuts is expected to come from the Middle Eastern crude pool, which is predominantly medium in terms of API gravity. Russia’s medium crude supply is also seen falling by 140,000 b/d y-o-y in 2019, which would add up to a dip of 670,000 b/d medium crude y-o-y in 2019 from the OPEC+ group.
  • US shale production growth is expected to recover after the temporary slowdown during the winter months, as we see it increasing by 1 million b/d y-o-y in 2019.

Gasoline demand growth in Asia this year lays mainly in the hands of China (see Asian Oil Weekly  – Issue 2).

  • China has been the main driver behind gasoline demand growth in Asia in the last several months, accounting for over 75% of total growth in H2-2018 – a trend we see continuing this year.
  • This year, we see demand growing by 60,000 b/d, a relatively conservative estimate coming mainly on the back of a baseline effect as we see the higher levels reached over H2-2018 being maintained over 2019.
  • However, a disappointing performance from Chinese demand amid high retail prices, declining vehicle sales and a strong push for EVs would weigh very strongly on an already oversupplied market. No growth in China would leave the region with just 80,000 b/d of demand growth, mainly coming from India (+50,000 b/d).

US gasoline flows to Europe at new record level (see Americas Weekly issue 1).

  • Gasoline exports to Europe at almost 80,000 b/d in October.
  • 33% higher than the previous record seen in November 2011.
  • Vast majority of flows headed for Netherlands.

Can gasoline trade at a discount to HSFO in 2019? (see Market Watch Issue 11).

  • On a barrel basis, there is small but noteworthy chance the two fuels trade close to each on average, especially in H1-2019 when we expect crack spikes for HSFO and continued very weak gasoline.
  • Mogas is pricing more like a ‘residue’ than a typical clean fuel, with the combination of a lightening crude slate and huge investments in light ends-focussed refining capacity making it difficult to avoid supply even when prices are weak.
  • The chances would increase if we continue to see lacklustre demand data for mogas, such as has been observed for many months already this year.

Total US crude and NGLs supply surged over the first nine months of the year. But it is even more impressive if we estimate it on a weekly EIA data basis (see Energy Market Report– 7 December).

  • On a 4-week average basis current US crude production is estimated above the 12 million b/d mark. Total crude and NGLs supply is now close to 17 million b/d, up 3 million b/d since the beginning of 2018.
  • Record high production logically raises some questions whether infrastructure limitations are really an issue.
  • At the end of November US crude exports broke another record, climbing to 3.2 million b/d.

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.