Fundamentals is our monthly review of global oil data, this is the July 2019 edition.
Crude oil balance:
Our Q2 19 crude oil balance dropped from a 0.1 mb/d build in our June Fundamentals publication to flat for the quarter. Throughout the quarter, various data points had indicated sizable stock builds which clashed with the tightness seen in the physical crude market. Now, with significant downward revisions to OECD inventory data and a 0.15 mb/d upward adjustment made by the NBS to Chinese runs for the quarter, our assessment of a tighter market is appearing more accurate. The increase in Chinese runs pushed up our East of Suez runs total by 0.2 mb/d from last month, while West of Suez runs were flat with last month’s estimates. The net 0.2 mb/d increase in global runs was partially offset by higher non-OPEC production, with Canadian and Gulf of Mexico production surprising higher in the quarter.
Our balance for Q3 19 has changed significantly from last month following the confirmation of the OPEC+ decision to extend its production cut into Q1 20. Our OPEC crude and condensate number is 0.6 mb/d lower than last month’s balance as a result, with Saudi output averaging 9.9 mb/d over Q3 19. Our current balance shows a quite extreme 2.5 mb/d draw for the quarter, which would pull more than 200 mb from storage by October. With a draw of this magnitude, even if OPEC produces above its production target, runs will have to massively disappoint to get anything other than a mightily constructive draw in Q3 19. Hurricane Barry will also help contribute to the draws by dragging GoM output lower m/m in July by nearly 0.3 mb/d.
Our runs estimates for Q3 19 are marginally higher than last month as East of Suez throughput increased by 0.3 mb/d. Despite this upward adjustment, we assume Chinese runs will be flat q/q as weak margins incentivise run cuts, particularly among the majors. Despite the closure of the Philadelphia Energy Solutions refinery, West of Suez runs are flat with last month’s estimates, with Atlantic basin refineries making up the difference.
With the OPEC+ agreement in place, our Q4 19 balance has slipped from a 0.3 mb/d build in last month’s Fundamentals to a 0.8 mb/d draw this month. The swing is led by reduced OPEC output including condensate, lower from last month by 0.9 mb/d; Russian production was also revised lower by 0.1 mb/d, in line with the OPEC+ agreement, and it may struggle even more as issues with crude contamination continue. We are slightly more bullish on West of Suez runs, revising up throughput by 0.1 mb/d for Q4 19 in anticipation of refineries running harder ahead of IMO.
Our full-year 2019 balance now indicates a 0.8 mb/d draw, noticeably deeper than the 0.3 mb/d we saw previously. Our 2020 balance has moved into a deficit of 0.7 mb/d from being flat last month due to Q1 20 OPEC cuts and stronger East of Suez runs growth.
Our Q2 19 liquids balance has softened from a draw of 0.9 mb/d last month to a 0.5 mb/d draw currently, as global demand disappointed. European demand has shown no signs of improvement, while wet weather in the US Midwest impacted the crop planting season, hitting US diesel demand. North American liquids supply was revised higher in Q2 19 as both US and Canadian NGL output was higher than expected, while Gulf of Mexico output picked up with tie-back completions and the start-up of Appomattox.
The Q3 19 liquids draw has deepened to 1.4 mb/d from 0.9 mb/d last month, driven by the downward revision to OPEC crude production. But demand worries continue, and these figures could be revised lower. We expect demand to stabilise in Q4 19, with our balance indicating a liquids draw of 0.2 mb/d, again lower than last month’s 0.5 mb/d build due to the OPEC cuts.
The extension of the OPEC+ deal has moved our full-year 2019 liquids balance to a 0.5 mb/d draw from a 0.3 mb/d draw previously, but the demand outlook was lowered, partially offsetting the supply cuts. For 2020, we see a liquids build, though the total has fallen from 0.6 mb/d last month to 0.5 mb/d this month (led by NGLs) as OPEC keeps production restrained into Q1 20.