Fundamentals June 2019

Published at 17:17 24 Jun 2019 by . Last edited 11:18 22 Aug 2019.

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

Crude oil balance:

Our Q1 19 crude oil balance has flipped from a small draw in last month’s Fundamentals, to a 0.1 mb/d build. The swing was predominantly driven by North American supply, with production outperformance in the Gulf of Mexico, where field maintenance was completed ahead of schedule and debottlenecking helped drive production higher. Bakken production also came back stronger than expected in March after freeze-offs stunted February output.

Revisions to our Q2 19 balance were mainly on the demand side, with runs coming in 0.6 mb/d lower compared to our balances last month, resulting in the expected draws over the quarter flipping from a 0.6 mb/d draw to a near 0.1 mb/d build. West of Suez runs saw the largest drop, with flooding in the US Midwest impacting refining operations and unplanned outages across Europe curtailing runs by some 0.3 mb/d from our previous expectations. East of Suez margins have weakened back to 2013 levels, incentivising widespread run cuts, including lower utilisation at Chinese independents. On the supply side, total non-OPEC production has come in around 0.2 mb/d higher than last month, with underperformance in Brazil, Mexico and Norway largely countered by higher-than-expected output in Canada (due to lower upgrader maintenance), the Gulf of Mexico (early start-up of Appomattox), and Kazakhstan (Kashagan debottlenecking supported a production increase).

Our Q3 19 balance remains largely consistent with last month, showing a 1.5 mb/d draw. Our runs estimates have fallen by 0.6 mb/d, with margins not yet offering any incentivise to refiners to increase throughput ahead of IMO 2020. Unless and until the OPEC meeting delivers a decisive outcome, our balance assumes OPEC+ will step up production in H2 19. This is based on our expectation of higher runs from new refineries (RAPID, Rongsheng, Hengli) and the OPEC crude oil termed-up to meet that demand. As such, if OPEC rolls over the existing deal of a 1.2 mb/d cut, our Q3 19 draws will stretch to near 2 mb/d.

Demand worries and the OPEC decision will have the biggest influence on our H2 19 balance and our initial look into 2020. With OPEC+ increasingly looking like it will hold the line with production, global supply will remain tight, setting up H2 19 to be far more constructive than H1 19, even without a surge in refinery runs that we had expected earlier in the year. That said, the market remains laser-focused on demand—as illustrated by the greater boost in price action from a Trump tweet on talks with China at the G20 than oil tankers being attacked in the Strait of Hormuz. In 2020, we see flat crude stocks, with large draws expected in Q3 20. Our 2020 view expects OPEC+ production returns and the global economy trudges through the current economic malaise but does not collapse into a sharp recession.

Liquids balances:

Our Q1 19 liquids balance has softened from a draw of 0.6 mb/d last month to a 0.1 mb/d build this month led by torrid March demand numbers in the OECD weighing on the quarterly total, and higher NGLs production in North America. Global demand still came in 0.9 mb/d higher y/y in Q1 19 and we maintain our expectations for growth to average around this level for 2019.

Our Q2 19 liquids balance indicates a 0.9 mb/d draw, a slightly smaller draw than the 1.1 mb/d draw we indicated last month. The change is due to downward revisions to demand, with expectations for non-OCED revised lower by 0.2 mb/d for the quarter on lacklustre preliminary data. Production remained largely at the same level as last month, though higher-than-expected liquids production in North America filled the gap left by weaker production in other non-OPEC countries and Russia.

The Q3 19 liquids draw has deepened by 0.1 mb/d from last month to 0.9 mb/d this month. Global demand expectations have been revised lower by 0.35 mb/d, though we see supply even tighter as non-OPEC production is lower by 0.1 mb/d versus last month. With a sizable stockbuild of 0.5 mb/d expected in Q4 19, our full-year liquids balance is now showing a 0.3 mb/d draw.

Our first cut of 2020 liquids balance sees a 0.5 mb/d build, though given our expectations of no builds in our crude balance, the liquids build will be a result of the rampant NGL supply growth across North America that we expect.

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