Research Highlights

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

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.

Net-length in Asian gasoline market pummels cracks (see Global Refinery Margins issue 31)

  • A relatively unchanged WoS gasoline balance in 2018 vs 2017 sees the vast majority of change occurring in the EoS region.
  • Asia, led by significant gasoline-focused secondary unit capacity additions in China over the past year, is seeing a dramatic shift in its regional gasoline balance.
  • 2018 gasoline demand growth of 160,000 b/d y-o-y in Asia is the smallest figure since 2006, although we expect this figure to return above 200,000 b/d in 2019.

As the 2020 implementation date of the IMO sulphur limit approaches, we see strong compliance with the regulation slashing HSFO bunker demand, as LSFO becomes the dominant shipping fuel going forward (see Bottom of the Barrel Issue 7).

  • We see scrubbers accounting for some 430,000 b/d of HSFO bunker demand in 2020.
  • Initially, non-compliant HSFO bunker demand should account for some 310,000 b/d, bringing average total HSFO bunker demand to about 800,000 b/d in 2020.
  • Compliance with the IMO sulphur restriction is likely to be a little above 80% at the outset, finishing 2020 in the mid-90% region.

The final chapter of Russia’s tax manoeuvre will begin in January 2019. Although the key parameters of the reform have been agreed on, some additional points will likely be introduced by the end of the year (see FSU/CEE Insight – Issue 28)

  • The negative excise on crude is to replace the implied subsidy by mirroring its phase-out over 2019-2024, maintaining the status quo for refiners.
  • The subsidy surplus is set to compensate refiners for a share of the difference between export netback prices and a fixed indicative price on the domestic market for ULSD and 92 RON gasoline.
  • The situation will be quite different for medium/complex and simple refining margins going forward, as simple refiners are exposed to the expected strong fall of HSFO cracks as we approach the IMO 2020 implementation. Moreover, simple refiners produce little to no ULSD and 92 RON gasoline, which will mean that their subsidy surplus will be close to 0.

Middle distillate demand growth (y-o-y) has been strong and steady across the globe, although growth in the West of Suez region is typically higher than that seen further east. (see Global Refinery Margins– Issue 27).

  • Last year crude intake in the West rose to meet this new demand, but this year’s ability to do so has proven more difficult on the back of strong refinery maintenance/outages as well as weaker margins.
  • A spate of new refining capacity in the east is boosting crude intake growth there well beyond demand growth, something that is impacting arbitrage spreads, and resulting in more Asian product flowing west.
  • We expect this trend to be particularly pronounced over Q3.

sample-image-twoCore OPEC members and Russia pulled the plug on the supply deal and increased output. In our base case we have revised their supply by a combined 440,000 b/d for H2-2018 (see Market Watch– Issue 7)

  • In the long run the easing of the cut agreement will somehow offset the effect of recent revisions, which we estimate will be in the magnitude of several 100,000 b/d.
  • However, in the short run we see a tighter balance in July and August, despite the revisions to Russian and Saudi Arabian production.
  • US fuel oil inventories continue to trend lower y-o-y and well below multi-year ranges.
  • Going forward the challenge for the OPEC/non-OPEC group will be to find the balance between potential oversupply and concerns about shortfalls caused by geopolitical instability.


US gasoline sales show remarkable responsiveness to price signals (see Refining Outlook – Issue 03)

  • By now it is a fairly well established pattern to see changes in the retail price in the US correspond to consumer behaviour when it comes to the choice of either premium or regular gasoline.
  • Since the beginning of 2017, retail prices have been climbing again, with the latest uptick seen since February 2018 – a move which has corresponded perfectly with increasing regular gasoline sales.
  • The shift, however, has yet to make an impact on alkylate or reformate prices – despite high octane gasoline components usually being the first area to feel pressure from the switch in consumer behaviour. Instead, we see the petrochemical industry driving the need for aromatics, supporting reformate and alkylate prices for now.

sample-image-twoThe mooted Chinese tariffs on energy imports from the US would impact a significant component of global oil trade which has grown to be worth almost 600,000 b/d in 2018, according to US government data (see  Energy Market Report– 20 June

  • Tariffs on crude, the largest and most valuable component, could have a pressuring effect on the US crude complex, which nowadays places between a fifth and a quarter of its export volumes into the Chinese market.
  • A reduction in the second-largest component of oil trade between the two countries - LPG - might provide some support for US petchem margins on the feedstock side by similarly removing a major export outlet.
  • Trade flows of US petcoke, of which China is a major buyer, would have to be reshuffled but the impact on USGC refining economics would be negligible.

Soaring crude and natural gas production amid expected low ethane rejection levels are set to drive NGL production in the Permian Basin above the 1.2 million b/d offtake capacity by September this year (see Market Watch – Issue 6)

  • Some 1.8 million b/d of pipeline capacity are scheduled to come online over the next two years, but the majority will not enter service before Q2-2019.
  • Hence, prices are likely to come under pressure, in particular in Q1-2019.
  • This could be exacerbated should mid-streamers decide to convert NGL to crude pipelines before new capacity comes online.

sample-image-twoUS supply growth is still dominated by shale oil additions from the Permian Basin (see Crude Oil Barrel– Issue 06)

  • Looking back to our forecast from the beginning of the year, we can see that Permian Basin output has historically been underestimated, while other shale plays have been a bit disappointing.
  • The limitations in takeaway capacity in the Texas Midland could become more of an apparent issue, with rebalancing in midstream not expected before mid-2019 at the earliest.
  • Looking ahead, we expect the oil patch will focus on other shale plays in the meantime.