This is the November 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 NAQ 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 – 2018 US crude balances: We set out our projections for US balances next year. While the pace of stockdraws slows from this year, to 47 mb including over 17 mb of SPR releases, this will be from a much lower starting point. We also predict counter-seasonal draws in Q1 18 as imports remain low and US exports surge. The US will need to absorb more Canadian heavy crude, which we expect to land in the Gulf Coast, not only backing out waterborne imports but also being exported to international markets.
- In Focus – Latin American refining outlook: Recent years have seen sizeable falls in the utilisation rate of Latin America’s refinery complex, with runs across the region set to drop below 5 mb/d across 2017. However, given just how poor 2017 has been for the region’s refining sector, with country’s such as Mexico hobbled by unplanned outages and significant maintenance schedules in Q4 17, we think the biggest declines in Latin American runs are probably behind us for now and runs could rise modestly in 2018.
- Outlook for North American crude: The Keystone outage cleared the overhang of heavy crude on the Gulf Coast and next year we expect Atlantic basin heavy and medium crude length to decline, as the expected OPEC rollover and recovering LatAm runs will outweigh the continuing growth in Canadian production. Still, we expect sweet-sour differentials to widen slightly next year, as a cocktail of factors support light grades. This will create a decent bid for US light crude exports, particularly from China, which we expect to at least double its intake of US crude, biased towards lighter grades.
- Outlook for products: International LPG prices have risen steadily in response to the tightening supply and demand balance for much of the year, but the balance that has been achieved by starving Europe of supplies looks harder to maintain as the northern hemisphere heads deeper into winter. As a result, the winter of 2017-18 is likely to see high prices for LPG both in the US and worldwide as the market scrambles to allocate scarce inventories to demand worldwide, but relief is on the way in H2 18 as rising associated gas production in the US increases NGL supplies.
- Outlook for crude production: Management teams of US E&Ps gave the impression of change during Q3 17 earnings and this is set to dominate the 2018 outlook. Returns, spending within cashflows, buybacks and paying down debt will be the key focus, if management teams are to be believed. However, the financial analysis suggests otherwise, and in a higher oil price environment, we expect producers to keep their spending elevated in order to meet lofty production targets, which we currently peg at just under 0.8 mb/d
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