Research Highlights

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

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.

Crude Slate Continues Push towards Light Sweet in 2019 (see Global Refinery Margins– Issue 38).

  • Given the strong US shale oil additions, it comes as no great surprise that the global crude slate is set to yet again become about 1 pp sweeter y-o-y, and slightly less heavy in 2019.
  • Medium sour barrels are set to be restricted due to Iran sanctions going forward, but other core OPEC players are expected to compensate to a certain extent.
  • The global trend towards a lighter crude slate is slowing down a bit, however, which should to some extent limit the trend of lower- available marginal residue for conversion operations.

sample-image-twoUS crude intake was last seen only 125,000 b/d below mid-August’s record high (see Americas Weekly– Issue 36)

  • US crude intake rose by 210,000 b/d w-o-w over the week ending 7 September.
  • Ports along the southern Atlantic coast remained shut, due to the Hurricane Florence, which caused a temporary halt on all vessel operations.
  • As these ports are key entry points for refined product cargoes supplementing flows from the USGC, port closures have probably caused temporary regional supply disruptions.

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US ethane demand has remained well-supported, but appears to have run into headwinds as older capacity is starting to be priced out of the market (see Top of the Barrel – Issue 08)

  • Ethane demand growth in the US has undoubtedly remained strong in the face of the around 3 million tonnes per year of cracking capacity that came online over Q1 this year, propelling demand growth over H1.
  • Nevertheless, monthly figures have yet to surpass their March peak, indicating that the strong price pressure on ethylene may have started to crowd out older, less efficient capacity.
  • We expect annual ethane demand growth over 2018 to reach 14% (210,000 b/d), with additional cracking capacity coming online over H2 keeping demand firm.

sample-image-twoUS June crude and condensate production rose to 10.67 million b/d, up by 230,00 b/d m-o-m, in line with our estimates (see Energy Market Report– 3 September

  • Texas and the Gulf of Mexico contributed the most to the supply uptick with a combined production ramp up of 320,000 b/d, while most other regions registered a slight decline.
  • The strong June reading indicates that the estimated output jump, based on weekly data, has probably took place at some point over the last few weeks.
  • We see current US production hovering above the 11 million b/d mark.

The five littoral states have reached a major breakthrough on the legal status of the Caspian Sea’s water zones (see FSU/CEE Insight – Issue 33).

  • The Convention of the Legal Status of the Caspian Sea, signed on 12 August, regulates the maritime borders between Russia, Kazakhstan, Turkmenistan, Iran, and Azerbaijan. It also forbids access to the sea to foreign military naval forces.
  • Although the Convention defines the territorial waters of each of the five countries, it does not specify the legal status of the offshore fields located outside the specified coastal waters.
  • The seabed division is yet to be agreed upon by all signatories, which coupled with the fact that pipeline projects need to be approved by all littoral states on environmental protection grounds, remains a major hurdle for a prospective Trans-Caspian pipeline.

sample-image-twoThe strait of Hormuz bottleneck

  • Saudi Arabia is the only Middle Eastern crude producer with significant export capacity outside of the Middle Eastern Gulf.
  • The UAE has roughly 750,000 b/d of spare pipeline capacity to bypass the Strait of Hormuz, however, would still see a large proportion of its exports trapped inside the Gulf.
  • Iran has next to no crude export capacity east of the Strait of Hormuz. Therefore, any move to block the Strait would halt its own exports.

US proposed CAFÉ standards would slow gasoline demand decline significantly in the long term (see Americas Weekly  – Issue 31)

  • The NHTSA and EPA have proposed to freeze CAFÉ standards for car models 2021-2026 at 37 MPG, instead of rising to 54 MPG by the end of the period.
  • Our model shows such a ruling significantly slow the declines in gasoline demand in the long term, requiring some 360,000 b/d more than our base case by 2030.
  • California’s waiver is also being targeted, and revoking such powers could further impact electric car sales. However, the long litigation process about those waivers may see carmakers continuing to produce more fuel efficient vehicles beyond MY2021.