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The US-China trade truce and OPEC+ set to agree to a nine-month extension to their output cuts should help ease concerns of an impending oversupply in the oil market, at least for now. So far this year, the supply side has done all the heavy lifting to keep crude markets tight, offsetting weak demand. Indeed, we now expect 2019 global refinery runs to only rise by 0.2 mb/d y/y compared to 1.1 mb/d we forecasted in January. But OPEC supplies have disappointed almost equally—we now expect a y/y fall of 1.8 mb/d vs a 0.9 mb/d drop at the start of the year. With US output growth not surprising to the upside, crude stocks are set to draw by 0.4 mb/d this year.
While crude on water has been drawing through Q2 19, visible draws have only just begun. Global stocks drew by 42–43 mb over the past two weeks according to a combination of government data and satellite imagery, with OECD crude draws of 29 mb. We expect global draws to continue in earnest in the coming months, by 1.9 mb/d through Q3 19. We forecast global runs to be flat y/y in Q3 19, but there is upside to this figure should demand, which has been hamstrung by trade war uncertainties, finally pick up and the strength in gasoline from the PES closure continue.
But the pick-up in demand will take time given the usual lag between confidence returning and investment decisions being made. Until then, we expect continued crude draws as refineries chew through their accumulated inventories, but they are unlikely to buy much new crude. So, the physical market, while still relatively strong and much tighter than this time last year, is unlikely to get back to the unprecedented tightness seen in crude grades early Q2 19. As such, we expect another relatively weak crude purchase cycle before the physical market can perk up.
|Evolution of EA global refinery runs, mb/d||Evolution of EA OPEC production, mb/d|
|Source: Energy Aspects||Source: MEES, Energy Aspects|