Fundamentals April 2019

Published at 12:22 25 Apr 2019 by . Last edited 11:18 22 Aug 2019.

Fundamentals is our monthly review of global oil data, this is the April 2019 edition.

Crude oil balance:

Our Q2 19 crude oil balance is notably more bullish than last month by 0.4 mb/d, indicating a 1.3 mb/d draw over the quarter, the strongest Q2 we have seen in years. That being said, runs are a touch weaker than last month, with a 0.1 mb/d bump in West of Suez runs countered by a 0.2 mb/d fall East of Suez. East of Suez runs are lower due to a slower ramp-up at the RAPID refinery following a fire at the atmospheric desulphurisation unit. Following softer Q1 19 runs due to unplanned outages, West of Suez runs will increase more than previously expected in Q2 19 as capacity returns from works.

The Q2 19 supply side has shifted more substantially. OPEC is where the action has happened, with crude production revised lower by 0.4 mb/d from last month, due to downward output revisions to Angola, Iran, Saudi Arabia and Venezuela. Following the US administration’s decision to end sanctions waivers on Iranian crude exports, we expect Iran to stabilise production and fill ullage before cutting back more significantly in Q3 19. We do not see other OPEC members stepping in to fill the production deficit until output from Iran has been reduced, with Saudi Arabia keeping the market tight. Additionally, the underperformance in ex-North America production has bled through into the remainder of 2019, with our forecasts for Brazil, Mexico and Norway having been revised lower.

For Q3 19, our crude balance shows a 1.7 mb/d draw, lower than our March print of a 1.9 mb/d draw, though still the most bullish quarterly print we have ever seen in our balances. With Iranian production due to be hit by 0.4 mb/d q/q in Q3 19, we are anticipating a reaction from the rest of OPEC, with higher output from Saudi Arabia, the UAE and Iraq supporting a 0.9 mb/d q/q increase in production. Our Q3 19 OPEC print is now 30.9 mb/d, lower than last month by 0.1 mb/d as Iranian production is squeezed. North American production is set to step up as debottlenecking in the Permian enables increased flows to the Gulf Coast, with our forecast from last month now 0.1 mb/d higher. Ex-North American non-OPEC production continues its downward trend, lower by 0.1 mb/d in this month’s balances.

However, the largest variable for Q3 19 is runs, and particularly those East of Suez, where we have seen a 0.5 mb/d downward revision. We expect a slower ramp-up at China’s 0.4 mb/d Rongsheng facility, which could start up as early as Q3 19, although any impact from rising runs will be felt in Q4 19 and beyond. Additionally, maintenance at the 0.23 mb/d Cilacap refinery in Indonesia was pushed back from March to July, reducing our Q3 19 Asia runs total. Finally, with weak refining margins persisting, we do not expect refineries to run as hard as we had initially expected them to ahead of IMO 2020, although this lends itself to a potentially tight products market as MGO demand kicks in from late Q3 19.

Liquids balance:

Liquids balances for Q2 19 are showing a much larger draw than last month, revised up by 0.5 mb/d to a draw of 1.1 mb/d. Again, the main story is 0.6 mb/d downward revision to OPEC liquids production as Venezuela and Angola struggle with output, Iran gradually slows, and Saudi Arabia keeps the market tight. The 0.2 mb/d drop in ex-North American non-OPEC production—largely in crude oil—has been replaced by a 0.2 mb/d upward revision to North American NGLs production after stronger-than-expected numbers over Q1 19.

Moving into Q3 19, our liquids balance has strengthened by 0.6 mb/d, now showing a 1.0 mb/d draw versus the 0.4 mb/d draw forecast last month. Again, the more bullish outlook is due to adjusted OPEC liquids numbers, down by 0.3 mb/d on our March estimate, and 0.1 mb/d of underperformance in non-OPEC supply, where downward revisions on weak Q1 19 production numbers reverberate through the forecast. We are slightly more bullish in non-OECD demand in Q3 19 with Chinese demand supporting improved emerging market outlook.

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