This is the August 2018 edition of our North America Quarterly. It covers all important aspects of the region, with a particular focus on the growth of US production and the 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 – US crude exports: The landscape for US exports is changing amid trade wars, US sanctions on Iran and US exporters’ keenness to find long-term homes as they realise every incremental barrel of output must be exported. The US wants to keep barrels at home for now and we expect lower exports through August and September before a rise in October. But with Chinese buyers withdrawing from US markets, even with lower overall US exports, the rest of the world ex-China will have to contend with higher volumes of US crudes.
- In Focus – US diesel—the well runs dry: Despite weak gasoline cracks, structural issues in the US have kept gasoline yields higher than would be expected. The consequence is diesel stocks have fallen below the five-year average. Additionally, US diesel demand has been surging. So with upcoming heavy refinery works in PADD 1 and PADD 2, USGC diesel exports will have to fall towards 2015 levels to resupply the US.
- Outlook for North American crude: What a ride it has been for WTI this summer with Cushing at tank bottoms. Stocks will build in August, September and October, but the builds across this month and next will mostly be in the form of heavy crudes, with limited impact on WTI. Forecasting year-end balances is trickier, however. We currently forecast a fairly flat profile (small builds) for Cushing stocks across November and December, but the plethora of moving parts means the end result could tilt either way.
- Outlook for products: While oil has stolen most of the spotlight for 2018, insufficient NGL processing, takeaway, and fractionation capacity has also been plaguing the US market since the start of the year and is now starting to constrain oil production growth. Even though midstream firms have announced a host of projects, there is a need for even more investment in gas processing to pipelines to fractionation facilities to unlock NGLs growth.
- Outlook for production: US E&P costs are rising faster than the 10% companies projected at the start of the year, with 20% now being quoted in some instances. Consequently, Q2 18 earnings were dominated by rising Capex, which overshadowed impressive volumetric y/y growth of 0.6 mb/d. Costs are back on the agenda, resulting in production guidance not being revised up.
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.