North America Quarterly

Published at 11:23 30 Aug 2017 by . Last edited 12:51 31 Aug 2017.

This is the August 2017 edition of our North America Quarterly, covering all important aspects of the region, with a particular focus on the growth of US production and its impact on regional and global balances for both crude and products. The Quarterly is designed to be a comprehensive guide to US and Canadian production, midstream projects, US and Canadian crude balances, regional differentials, and the US refining industry.

Inside this edition:

  • In Focus: Shale producer guidance offers a company-level view on production growth, while consensus estimates offer the market’s views on US production growth. With many players extrapolating guided growth to the entire US production base, we highlight the pitfalls of this approach and compare the company guidance and consensus estimates for a sample of producers against actual wellhead production for the entire country.
  • In Focus: We revisit and revise upwards our Gulf of Mexico (GoM) production forecasts for 2017 and 2018 following a period of consistent outperformance in the region, which was due to large-scale investments made by the majors rather than tie-backs that we identified at the start of the year. With GoM output now providing an important source of incremental cashflow for majors and diversified independents, alongside new project start-ups expected through Q4 18, we expect the region’s strong output growth to continue.
  • Outlook for crude: Hurricane Harvey has thrown a spanner into the works of US crude balances, with around 3.5 mb/d of US refining capacity offline at the end of August. This will result in 0.45 mb/d of backed-out domestic crude and 0.26 mb/d of backed-out imported crude and will weigh primarily on WTI at Midland and Cushing, whilst Houston prices are less susceptible as lost supply mitigates the affect of lost demand in the region. 
  • Outlook for products: The IMO decision to reduce the maximum sulphur content in global marine fuels from 2020 will pressure refining margins along the USEC and USWC as falling bunkering demand coincides with declining oil powered electricity generation and reduced export flows into Asia. Despite increased diesel demand from the marine sector, we expect North America to retain significant length in diesel, at over 1 mb/d, whilst fuel oil length rises by 0.18 mb/d between 2016 and 2020 as complex refiners fully dispatch their upgrading capacities. However, we expect the Latin American short to grow through 2020, offering a ready outlet for US distillate and residual length.
  • Outlook for crude production: US E&P equities have fallen by 20-30% this year and disconnected from oil fundamentals as investors lose patience with absent profitability and high cash burn rates. With Capex set to rise by 45% y/y across H2 17 for 11 large-cap independents, there are no signs of management slowing the growth train yet. This gulf between E&P management’s strategic direction and investors’ appetite for oil growth stocks has seen capital raised from debt and equity markets half in H1 17 compared to H2 16. In our view, this will hamper these firms’ ability meet guided growth targets.

 The North America Quarterly also provides a regular, detailed update on pipeline projects, rail capacity, US PADD-by-PADD crude balances, Canadian regional crude balances, US, Canadian and Mexican regional refinery slates, Canadian crude balances, product demand and cracks, crude imports by grade, shale plays by basin, US independents’ hedging activity in 2017 and 2018, and the latest production data, including rig counts and technological and regulatory developments affecting the domestic oil industry.

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