This is the May 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 – Western Canadian takeaway constraints: While the market has focused on Permian takeaway capacity, Canada has long been suffering from the same challenges. Pipes are full, apportioned, and already running drag reducing agents (DRA), while vacant old rail terminals and a dearth of locomotives mean that rail infrastructure is not currently able to come to the rescue. We have cut our 2018 crude production forecast by 70 thousand b/d, to 0.3 mb/d of y/y growth, and retain our view of flat y/y growth in 2019 as production cuts must occur.
- In Focus – US gasoline outlook: Despite weak gasoline cracks, the gasoline market is facing a double whammy of softer demand and plentiful supply. While the world appears to want more diesel, structural issues in the US are keeping gasoline yields higher than would be expected given prevailing product prices as light shale crude prices itself into the domestic refining fleet.
- Outlook for North American crude: US exports have dominated market conversations so far this year. While output is undoubtedly growing rapidly, the export surge has come from refinery runs underperforming expectations due to a slew of unplanned outages and delayed maintenance rather than a jump in production above and beyond our expectations. As runs come back, exports should moderate.
- Outlook for products: US ethane demand will grow at a record pace in 2018 as five steam crackers come online by year-end on the USGC. We estimated ethane rejection at 0.38 mb/d last year, but this year it is set to decline to 0.30 mb/d.
- Outlook for production: Strong production growth from the Permian, which accounts for 60% of total expected 2018 US growth, will face constraints in H2 18 as production of 3.42 mb/d outstrips available takeaway capacity at year-end. This can weigh on producer cashflows at a time when costs are rising.
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