The world is currently watching the growing tensions in the Middle East, and oil market analysts are guesstimating just how much Iranian oil supply the renewed U.S. sanctions could stifle.
Yet, the biggest story in oil markets this year may well take place far from the much-publicized tensions in the Middle East – namely China’s ever-growing oil demand.
The key oil demand growth center—China—has just beaten its own imports and refinery runs records, as refined oil product exports jump and domestic crude oil production hits seven-year-lows.
While all eyes are riveted on Iran and the Middle East, the pace of Chinese oil demand growth could be the most underappreciated story in oil markets right now, Bloomberg Opinion columnist David Fickling writes.
China’s oil demand growth has so far this year exceeded expectations, and Goldman Sachs, for example, says that growth could be even “higher than currently estimated”. According to Goldman, global oil demand growth in the first quarter of 2018 is likely to have seen the strongest yearly growth since the fourth quarter of 2010.
Read: https://oilprice.com/Energy/Energy-Gene ... arket.html
"As a supply loss in collapsing Venezuela and a potential decline in Iranian oil exports push oil prices up, the pace of demand growth in China could drive global demand growth higher. If demand growth continues to be strong—as currently expected—an already tight oil market could become even tighter amid geopolitical concerns, driving oil prices further up."
Global Oil Market is NOW very tight
Global Oil Market is NOW very tight
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Global Oil Market is NOW very tight
Morgan Stanley just sent a note to clients that they are raising their crude oil price target to $90/bb. Here's why.
Martijn Rats, CFA – Morgan Stanley
May 15, 2018 9:00 PM GMT
Middle distillate demand is growing strongly and inventories are approaching 5-year lows. On top of that, the new IMO regulations should add another ~1.5 mb/d to demand for oil by 2020. We foresee a scramble for middle distillates that will drive crack spreads higher and drag oil prices with it.
Middle distillate inventories are approaching 5-year lows as demand grows strongly: Since 2011, middle distillate demand – i.e. diesel and jet fuel – has grown at a trend rate of ~0.6 mb/d y/y, accelerating to ~0.8 mb/d y/y in recent quarters. The global refining system, however, is struggling to keep up with this. Inventories have been falling and are close to 5-year lows already.
IMO regulations to boost demand by another ~1.5 mb/d by 2020: In response to the IMO's upcoming regulation, we see most shipping companies switching to lower sulphur fuels – see Countdown to IMO 2020, also published today. This should move ~1.5 mb/d of fuel oil demand into the middle distillate pool.
Oil supply growth is dominated by NGLs and condensate, from which refiners cannot make middle distillates: Global oil supply increased 0.4 mb/d in both 2016 and 2017, according to the IEA. However, NGLs and condensate accounted for 0.5 mb/d of this, and these liquids do not yield any middle distillates. Instead, middle distillates require crude oil, in a ratio of 1.8 barrels of crude for every 1 barrel of middle distillate. Production of crude oil, however, already declined in 2016, and again in 2017.
On current demand trends, crude oil supply would need to increase 5.7 mb/d by 2020 – it is unlikely this can be delivered: Three years of trend growth would add 1.7 mb/d to global middle distillate demand over 2017-20. Another 1.5 mb/d from new IMO regulations would bring total demand growth to 3.2 mb/d. To produce this, refiners would likely need to process an incremental 3.2 * 1.8 = 5.7 mb/d of crude oil by 2020. We see global crude production re-accelerating again, but falling well short of this level.
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As I have mentioned in several of my weekly podcasts, shale oil is ultra-high API gravity. Refiners cannot make diesel from this crude oil. This is a very big deal because diesel demand is quite high. - Dan
Martijn Rats, CFA – Morgan Stanley
May 15, 2018 9:00 PM GMT
Middle distillate demand is growing strongly and inventories are approaching 5-year lows. On top of that, the new IMO regulations should add another ~1.5 mb/d to demand for oil by 2020. We foresee a scramble for middle distillates that will drive crack spreads higher and drag oil prices with it.
Middle distillate inventories are approaching 5-year lows as demand grows strongly: Since 2011, middle distillate demand – i.e. diesel and jet fuel – has grown at a trend rate of ~0.6 mb/d y/y, accelerating to ~0.8 mb/d y/y in recent quarters. The global refining system, however, is struggling to keep up with this. Inventories have been falling and are close to 5-year lows already.
IMO regulations to boost demand by another ~1.5 mb/d by 2020: In response to the IMO's upcoming regulation, we see most shipping companies switching to lower sulphur fuels – see Countdown to IMO 2020, also published today. This should move ~1.5 mb/d of fuel oil demand into the middle distillate pool.
Oil supply growth is dominated by NGLs and condensate, from which refiners cannot make middle distillates: Global oil supply increased 0.4 mb/d in both 2016 and 2017, according to the IEA. However, NGLs and condensate accounted for 0.5 mb/d of this, and these liquids do not yield any middle distillates. Instead, middle distillates require crude oil, in a ratio of 1.8 barrels of crude for every 1 barrel of middle distillate. Production of crude oil, however, already declined in 2016, and again in 2017.
On current demand trends, crude oil supply would need to increase 5.7 mb/d by 2020 – it is unlikely this can be delivered: Three years of trend growth would add 1.7 mb/d to global middle distillate demand over 2017-20. Another 1.5 mb/d from new IMO regulations would bring total demand growth to 3.2 mb/d. To produce this, refiners would likely need to process an incremental 3.2 * 1.8 = 5.7 mb/d of crude oil by 2020. We see global crude production re-accelerating again, but falling well short of this level.
-------------------------------
As I have mentioned in several of my weekly podcasts, shale oil is ultra-high API gravity. Refiners cannot make diesel from this crude oil. This is a very big deal because diesel demand is quite high. - Dan
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group