Extract from demand:
European oil demand fell in August for the sixth straight month, down y/y by 0.5 mb/d to 15.5 mb/d. Demand fell across the EU-5 countries, by 0.43 mb/d y/y to 8.10 mb/d y/y. The UK led the decline (-0.18 mb/d y/y), which marks the largest y/y decline since 2007, followed by Italy (-0.14 mb/d y/y). Though August’s slowdown in demand growth is in line with recent official economic data, which remain lacklustre throughout the region, EU-5 final numbers could well be revised higher keeping in line with a recent trend of upward revisions. Indeed, European demand for July was revised higher by 0.4 mb/d to now show demand as roughly flat y/y, compared to previous estimates of a 0.44 mb/d y/y decline. August demand outside the EU-5 fell by 0.1 mb/d y/y, while Turkish demand was down by 20 thousand b/d y/y. Given the slowing economic backdrop and limited scope for recovery, we expect demand to stay weak throughout the remainder of 2019.
Extract from refinery runs:
Refinery runs rose by 0.25 mb/d m/m to 13.26 in August but were down y/y by 0.42 mb/d. The y/y decrease in runs followed a 0.29 mb/d rise y/y in CDU maintenance and disruptions, as refiners started to ramp up works once more following a brief hiatus in July, ahead of peak seasonal works in September. August works include maintenance at two of the three CDUs at MOL’s 0.16 mb/d Szazhalombatta—which started late-July—as well as two-month maintenance at Galp’s 0.23 mb/d Sines refinery, both of which are scheduled to end early October. We expect refinery runs to average 13.1 mb/d across Q3 19, up by 0.7 mb/d q/q, as diesel cracks continued to carry the barrel, which will incentivise runs ahead of IMO 2020.
Refinery margins slumped through August amid a slowdown in transatlantic gasoline demand, as stocks on the USEC continued to build amid a wave of imports and ahead of the US switching to winter grade gasoline, which has a wider vapor pressure (RVP) specification. However, the USEC will grow increasingly more dependent on transatlantic imports amid the Tier 3 low-sulphur requirement, a shrinking benzene credits pool and rising competition for FCC feedstock from the low-sulphur bunker market. The resulting rise in high-octane blendstock demand will support European gasoline prices through the winter season. Distillate cracks remained buoyed amid a slowdown in diesel flows towards Europe, as the east-west arb remained closed throughout most of the summer. This was due to strong Asian demand, while Russia’s scheduled ULSD exports via its Baltic port of Primorsk remained hamstrung amid heavy maintenance. Flows to Europe will likely recover as maintenance at Asian and Russian refineries wind down, Middle Eastern production slowly recovers to where it was before the attacks on Saudi infrastructure on 14 September and refineries gear up for IMO 2020.