Here you will find regular updates on some of the most notable research outcomes generated by our team of analysts.
Our current forecast for the 2018 liquids balance is almost 0.5 million b/d (this includes OPEC/non-OPEC extension up to end-2018), up from a 300,000 b/d deficit this year (see Market Watch– Issue 10)
- In the run-up to the OPEC/non-OPEC meeting on 30 November, current indications and clear potential for a massively oversupplied market in 2018 without market management are supportive of an extension of the deal beyond Q1-18.
- However, a continuation of the cut would bring a flat balance taking into consideration Chinese continued stockbuilding needs.
- In other words, any supply disappointment or demand surprise brings with it the potential for higher prices unless OPEC/non-OPEC start to work on a staged exit strategy. We do deem prices above $60 per barrel to be detrimental to OPEC interests, as they are likely to trigger additional supply (e.g. US shale) and demand (e.g. more hybrid/electric car sales).
Global supply of residual fuel oil has been on a steady declining trend for several years now (see Bottom of the Barrel – Issue 10)
- The worst declines in fuel oil supply should now be behind us. In 2018, we expect global availability to decline by “only” 100,000 b/d, which is half the size of declines seen over 2015-2017
- Nevertheless the magnitude of demand declines is also shrinking and overall, the decline in supply is expected to be larger than the decline in demand
- This means that the global fuel oil balance is set to tighten further in 2018, which creates room for upward movement in fuel oil prices and cracks
Asian refining capacity additions concentrated in H2 2017 (see Asian Oil Monthly – Issue 10)
- About 400,000 b/d of CDU capacity came online in Q3 in Asia and we expect to see another 320,000 b/d of primary refining capacity (including condensate) in Q4.
- Capacity additions stemming mainly from China, but also Pakistan. In the former, PetroChina has started commercial operations at the 260,000 b/d Anning refinery in Q3. Additionally, CNOOC has started ramping up the 200,000 b/d expansion of its Huizhou plant. Meanwhile, Pakistan’s 85,000 b/d Byco refinery came back online in August after a two-year fire-induced shutdown.
- The regional impact of the new capacity should be limited due to lack of CDU additions over H1 and strong product demand growth. In fact, H1 saw a net decline in primary refining capacity due to the shut-down of 310,000 b/d in Japan. For this reason, we the H2 additions as badly needed to meet soaring demand.
Recent progress at a number of oil sands projects and upcoming projects for next year warrant our view that Canadian supply could surprise to the upside next year (See Americas Weekly– Issue 40)
- We see strong potential for Canadian supply to surprise to the upside next year – our base case is for Canadian crude and condensate production to average slightly over 4.2 million b/d next year
- 2018 supply could come in as much as 235,000 b/d higher than our base case if most of the projects come online with only small delays – even without the Algar Lake Phase 2 project.
- Downside risk would stem from project suspensions or delays as well as heavy maintenance – we see a potential downside of 200,000 b/d although we deem this to be unlikely given the strong maintenance seen these past two years
The Brent/WTI dislocation of the last few weeks has served to allow Brent to remain relatively stronger vs. other benchmarks despite a lengthening in the Atlantic Basin crude balance (see Refining Outlook – Issue 4)
- The lengthening in the Atlantic Basin crude balance has been reflected in the Brent/Dubai EFS spread, which has remained around ytd highs recently. Fundamentally, a growing deficit in the East of Suez market between now and the end of the year should act as a clear cap on this spread. Balances would in fact suggest that it should tighten somewhat in the near term.
- A key risk here is that Chinese crude buying remains slower than it was over H1 (and which is not reflected in balance assessments). The most recent crude flow indications have provided more evidence of a sustained slowdown.
- Equally there is a risk that a significant share of the additional refining capacity that is scheduled to come online over the remainder of this year is pushed back into 2018. This would effectively narrow the East of Suez crude deficit for the remainder of the year, and would speak in favour of a Brent premium over Dubai which is more sustainable at a wider level of $1.50 per barrel or more.
We expect to see the share of ULSD in total Russian gas oil/diesel exports to increase over the coming year (see FSU/CEE Insight– Issue 37)
- We see about 200,000 b/d of conversion units coming online in Russia by the end of next year. However, most of the projects are likely to materialise only at the end of the year and their effect will be felt predominantly in 2019.
- Desulphurisation capacity will also grow next year with about 120,000 b/d expected to come online. According to our estimates, this will bring the total outright figure to 2.9 million b/d by December 2018.
- According to our estimates, much of the desulphurisation capacity additions in 2018 will be focused on middle distillates, which would speak in favour of an increase in the share of ULSD in total Russian gas oil/diesel supply.
Long-term demand trends and JBC Energy’s SuDeP transportation model findings are being discussed this week at the JBC Energy Matters Seminar in Vienna
- Diesel transport demand in EU28 is expected to fall by 14% to 3.5 million b/d by 2030.
- The current shift to gasoline passenger vehicles is estimated to shave off some 200,000 b/d from diesel demand in that time-frame.
- Biggest reductions are expected to come from efficiency gains in other segments such as freight and busses; demand from freight currently accounts for more than 50% of diesel transport demand in 2016.
Spare refining capacity is low and may stay so for some time (see Market Watch – Issue 8)
- The evidence is increasingly clear that global refining markets are tight compared to historical observations.
- Outages, strong demand, and a lack of capacity growth contributed to tightening refining markets
- Relatively slow pace of additions ahead will keep risk of margin spikes high
- It may be some time before margins will need to be low enough to provoke cuts to swing utilisation
JBC Energy’s new Middle of the Barrel Report provides monthly analysis and projections on the most important factors affecting the middle of the barrel (diesel, jet/kero and gasoil) across the world
- Our assessment of global gas oil/diesel balances paints a tighter picture compared to one month prior with upward revision to our demand forecast and some downside to our supply estimates. As a result we now see the global gas oil/diesel balance tightening by 190,000 b/d y-o-y in H2-2017.
- On the demand side, recent high growth figures coming from Asia, Europe, and the US has motivated our decision to revise our demand forecast for these regions. We expect the favourable economic developments there to continue supporting demand growth at a similar pace to the past several months.
- Turning to supply, the exceptional strength in global regrades has resulted in a yield switch away from the gas oil/diesel segment in some regions.
European gasoline demand continues to hold almost at the same level as the last few years, with the last major sustained downside observed back in 2015 (see Top of the Barrel– Issue 8)
- Economic recovery and low outright prices have played a role in upward forecast revisions over the last years.
- We expect renewed declines as of next year, however, although at a slower pace than those observed over 2012-2014.
- Despite growing expectations about the role of EV’s, the trend of switching away from diesel towards gasoline is likely to prove supportive nonetheless.