Our Europe, Middle East and Africa Quarterly (EMEAQ) provides comprehensive analysis of the EMEA region, examining key topics in depth and providing a detailed guide to regional supply, demand, trade flows and downstream capacity. Each quarter, ‘In Focus’ chapters delve into key issues that will impact the market in the near and medium term.
In this edition:
- In Focus: Russian oil production looks set to increase, contrary to market belief, at an annual rate of 0.1 mb/d, from 11.3 mb/d in 2019 to 11.7 mb/d in 2023. The increase is driven by a mixture of more drilling, field efficiencies, and government tax breaks, which have combined to combat declines and allow new field development. The downside risk to our forecast largely comes from Russia’s growing role in the Middle East, which could see Moscow continue output coordination with OPEC beyond the short term.
- In Focus: Iranian oil exports are expected to plunge to 0.6 mb/d from May, following the US move to end all sanctions waivers. However, Saudi Arabia has already signalled that it will not pre-empt Iranian losses, so any production hikes from OPEC will be gradual. Between Iran, Venezuela and increased risks to Libyan production, the physical crude market will stay strong, particularly for sours.
- Macroeconomic outlook: The European economy has slowed down markedly since 2018, alongside disruptions to vehicle production in Germany, the rise of populism across the region, and the slowing of global trade. The increasing fragility of European economic stability will no doubt filter through to oil demand. We currently expect a contraction of at least 0.15 mb/d y/y in European oil demand in 2019.
- Outlook for oil products: Diesel markets find themselves in an awkward contango, as weak demand has counteracted the feeble supply outlook. The longer demand stays lacklustre, the longer the supply response gets deferred without adequate restocking, and the more probable a price spike becomes. Our price-sensitivity analysis indicates that just 0.1 mb/d of conventional demand would be freed up if prices lurched higher, not nearly enough to address the expected 2 mb/d incremental hike in MGO demand.
- Outlook for crude: In November, the Dated Brent benchmark will be changed to a delivered assessment to sustain ample liquidity. Meanwhile, physical crude tightness has pushed Brent spreads into a steep backwardation. Yet the benchmark changes, the start-up of the Norway’s Johan Sverdrup field in Q1 20, and strong competition with US crudes will likely cap Brent spreads later this year.
EMEAQ also provides a unique and comprehensive overview of key regional data, focusing on: demand, refining, supply, trade flows and prices, including domestic consumption by country and by oil product for key European, Middle Eastern and African countries; refining capacity and upcoming projects by country; refined products output; and crude output by country, with a detailed focus on the largest regional players.