The situation in Venezuela has progressively evolved into a stalemate, with no quick resolution in sight. As a result, we have reduced our H2 19 Venezuelan output projections by around 0.30 mb/d. But this also implies the Trump administration is likely to go soft on Iran, and our soundings indicate that overall waivers may only be reduced marginally, with exports fluctuating between 0.8–1.1 mb/d. India, China and Turkey will likely receive no cuts and Korea a paltry 10%.
We have raised our estimates for Iranian production and exports for the balance of the year. Our crude balance still shows a draw of 0.8 mb/d in Q2 19, but our Q3 19 draw is marginally lower at 1.9 mb/d. Our balances still assume the OPEC+ deal is not rolled over for H2 19, even though we believe the group is very likely to extend the deal to year-end when it meets in June.
Moreover, refineries will run hard once they return from maintenance in preparation for IMO 2020. This may start as early as Q2 19, with planned works some 1.1 mb/d lower y/y. While the sell-off in diesel has hurt margins, the sharp recovery in gasoline—which we think can last for the next few weeks—has helped, particularly supporting simple margins. With USGC crude stocks extremely low, closing off several export arbs, CPC exports set to fall sharply over April and May and then Ekofisk entering maintenance in June, North Sea lights can find some support in the near term. The only thing holding Brent spreads (and WAF) back now is the lack of Chinese buying.
The lack of crude stockbuilds for most of Q1 19 despite peak refinery works early this year is noteworthy. As long as refining margins hold, crude should continue to move higher, despite the apathy from the spec community. But with the April OPEC+ meeting off, it could be stalemate.
|Venezuela crude production, mb/d||Monthly global crude stock change, mb/d|
|Source: Energy Aspects||Source: Energy Aspects|