Oil Market Report - 12th March 2019

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Production Declines Struggle to Excite the Market: Prices continued their slow upward trend as they hit 2 week highs. The main reason behind this rally has been Saudi doubling down on restricting production and exports. According to one Saudi official, Saudi plans to produce 10mmbd in April, but exports will only be 7MMBD. This will really annoy their Asian customers as they first hiked their OSP to Asia and now exporting only 7MMBD when nominations were at 7.6MMBD. This should help Saudi stocks recover after dropping by almost 100million barrels in the last 2 and a half years.

Venezuela experienced a major power outage last week. The impact of the crude production is unknown but some consultants say that this number can be as high as 0.5MMBD during the power outage and production will hit new record lows.

To offset these bullish developments, Libyan production was on track to hit near 6 year highs after the restart of Sharara field went very smoothly. Sharara currently producing around 250KBD and that will make Libyan production reach almost 1.2MMBD.

Source: JODI

Source: JODI

Source: OPEC and dotted line is forecast (Unit: MMBD)

Source: OPEC and dotted line is forecast (Unit: MMBD)

Source: OPEC and dotted line is forecast (Unit: MMBD)

Source: OPEC and dotted line is forecast (Unit: MMBD)

Source: ANP and PEMEX

Source: ANP and PEMEX

Outside of OPEC, we got January production numbers from Mexico and Brazil. IEA and other consultants have put big hopes on Brazilian production growth and 2019 is the year when this growth will occur. However, numbers have been disappointing so far. The January numbers came at 2,631KBD which is only 16KBD higher y-o-y. On the other hand, Mexico continues to shower steeper declines than expectations. Mexican January production is -288KBD lower than last year or -15%. The issue has become so serious that FT reported that the Mexican finance minister has put a refinery project (Dos Bocas) on hold and will use that $2.5BN budget to boost Pemex production. It looks like that between a tough choice of falling crude output and booming product imports from the US, Mexico has prioritized boosting crude output.

EIA updated their monthly statistics and we created the below interactive chart. It shows crude production by state and by API. It further highlights the crude quality issues which is occurring in the US and globally. US has had phenomenal growth in light sweet crude but declining on crudes below API 30. The Y-o-Y production growth (KBD) for the various crudes is: API 25 and lower: -19, API 25-30: -157, API 30-35: +263, API 35-40: +465, API 40-45: +813, API 45-50: +372, API 50+: +88. This interactive chart is best seen full screen by pressing the square button in the bottom right and clicking on any of the states to see their historical production.

The monthly EIA numbers gave us a US demand number for 2018. US oil product demand grew by 1.1% which was mainly supported by diesel demand which grew by 5%. Without the strong growth in diesel, US demand would have been flat.

EIA also released their latest STEO outlook. Their revised their US 2019 production growth forecast lower from 12.41MMBD in February to 12.3MMBD in yesterday’s report. This was the first cut in production forecast in 6 months. However, this number is still significantly higher from the forecasts published in Q4 last year. Even in 2018, EIA grossly underestimated the 2018 US production.

Source: EIA

Source: EIA

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Moving to China, Chinese customs released their figures for February and imports remain elevated and above 10MMBD for the 4th month in a row. The new refinery start ups this year like Hengli and Rongsheng will keep imports at even higher levels in months to come.

On the product side, gasoline finally got a bid as DOE showed a hefty stock draw last week as the gasoline yield came in low. Even yesterday’s API numbers were bullish for gasoline. Currently low yield and high exports is keeping US gasoline stocks within the 5 year range as the demand print is coming weak.

In Europe, refinery margins have significantly rebounded as refineries enter maintenance. We track Neste’s refinery benchmark margin and despite a strong Urals market (their main crude source) their margins have jumped up almost $4 in the last 2 months to reach the highest levels this year.

Source: Neste

Source: Neste

Source: GAC

Source: GAC


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