This is the February 2018 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 – Permian infrastructure: Constrained. The market has once again shifted focus to Permian takeaway capacity. Given the strong forecasted growth in the basin this year, we see takeaway constraints as a real issue in H2 18 and expect WTI-Midland to reprice accordingly. We expect that this process could start as early as July or August, based on an assumption of 90% capacity utilisation on the takeaway pipelines. This has important implications for WTI spreads and WTI-Brent as shippers will look to pipes to Cushing to fill the gap, raising Cushing stocks.
- In Focus – US exports: How much and how soon? To balance the US market, exports will need to do the work, otherwise inventories will grow. To keep stocks flat at year-end 2017 levels, the US will need to export an average of 2 mb/d in 2018. But that is 0.3 mb/d more than the maximum monthly export level in October 2017. While there is a fair amount of export capacity slated to come online this year, much of it will not come online until Q4 18, making it highly unlikely that US export capacity can meet the required levels in time to meet growing shale production. So, a combination of higher runs, lower imports and inventory builds will also be required to clear supply growth this year.
- Outlook for North American crude: We discuss our view on WTI and associated factors affecting the benchmark for 2018. Indeed, higher volumes on the Basin pipeline from rising Permian production could weigh on Cushing, while growth in the Rockies and Bakken will push more volumes on Saddlehorn alongside growing local production in the STACK and the SCOOP in Q4 18. Although we are bearish in Q4 18, potential higher volumes on Marketlink could result in an outside chance of tank bottoms in the summer, which will lift the entire curve first.
- Outlook for products: Concerns about gasoline demand growth at high prices is rampant, against a backdrop of weak LPG prices dragging naphtha lower. However, improving global economic conditions and short-term tax boosts in the US could provide support to gasoline demand, offsetting any price elasticity seen from rising oil prices. In 2019, however, gasoline demand growth could decelerate as employment gains slow.
- In Focus – Brazil’s oil sector: It’s complicated. Brazil’s oil sector has undergone dramatic shifts across both the upstream and the downstream over the past few years. As a result, light production from the pre-salt fields has outperformed at the expense of declining heavy crudes. With runs set to rise, exports could be capped even with rising production.
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 2018 and 2019, and the latest production data, including rig counts and technological and regulatory developments affecting the domestic oil industry