We use this 'In Focus' to identify and analyse 10 themes that we believe will shape the oil world in 2016
Global supplies - what a response
Oil market spending will fall for a second straight year in 2016 for the first time since 1986-87. Globally rig counts fell by 224, Capex fell by 19%, and oil prices fell by 46% last year. The effects of these will be felt in 2016 and will be most apparent in the US where we forecast a crude supply reduction of 0.33 mb/d.
Iran - little by little
Implementation Day for the nuclear deal should occur in Q1 16. We expect Iranian output to only rise by 0.25-0.4 mb/d this year, mostly medium-sour and heavy crude. The return of IOCs needed for a larger recovery is not yet certain. Meanwhile, the regional stand-off between Iran and Saudi Arabia continues.
Crude diffs - too much of the heavy stuff
Heavy crude production is on the rise, with robust production from the Gulf of Mexico, Canadian oil sands and Iraq, while Iran’s return will be biased towards heavy crude too. At the same time, falling US light sweet production and increasing refining capacity will tighten sweet crude markets, leading to inferior sweet refining margins.
Geopolitics - when the money runs out
Even wealthy oil producers like Saudi Arabia are making difficult financial choices and reforming subsidies. Other OPEC producers such as Venezuela are far more vulnerable. Beyond near-term political risks, lower investment is likely to cause lasting damage to already fragile economies.
US crude exports - more swagger than sway
A 40 year old crude export ban in the US has been lifted. Even though the current strength in US prices does not make exports economic, midstream companies are rushing to add infrastructure. Corpus Christi and Houston will be the key hubs with theoretical volumes rising towards 1 mb/d. LatAm will likely be the main importer.
US pipes - changing course
As more North American crude is set to head into East Coast Canada, Atlantic Basin and Gulf Coast domestic sweet crudes are likely to be backed out. But, Enbridge’s system will be unable to satisfy both current and new sources of demand. These pipes will significantly alter the way crude traverses the US mainland.
Global refining - grappling with the glut
Diesel markets worldwide are oversupplied yet gasoline is tight. Demand growth will help, but 1.2 mb/d of new CDU and condensate splitting capacity will add to the glut of middle distillates. Yields will have to move materially to gasoline for refining margins to stay positive and that is already occurring in places like Europe.
China 2016 - the year of the teapot independence
Independent Chinese refiners are receiving quotas to import crude, with the total volume set to rise to 1.5-1.8 mb/d in 2016. The actual effect on the market will be smaller, at 1 mb/d as the teapots already import some crude through state owned traders. In turn, teapots will raise product exports sharply, weighing on Asian prices.
Gasoline - apparently it's a big deal
Gasoline demand is on an upswing globally yet gasoline-making capacity growth has been slow, particularly in Asia. Octane remains in short supply in a number of markets and supplies will have to be found to meet demand. Higher exports from Russia will help yet the supply chain will be vulnerable to disruption.
LPG and naphtha - a larger battleground
European LPG prices have fallen relative to naphtha as a result of record US exports, and 2016 will likely see an continuation of this trend in Asia as well. Falling naphtha exports set against strong demand growth, meanwhile, will contribute to naphtha market tightness, and could encourage further investments in LPG cracking capacity.