OPIS veteran editors, Tom Kloza and Denton Cinquegrana, analyze market conditions and make predictions for oil and fuel markets for the rest of 2018. Highlights are below, but be sure to download the FREE 2018 Outlook Forecast Mid-Year Review to get their complete market overview and a revealing list of predictions – with prices – for the rest of the year.
Global Expansion Keeps Oil Demand Rising
Oil markets recently moved through the two highest-priced quarters since 2014. Demand for oil products continues to advance with 2018 likely to see the first-ever month in which demand reaches 100 million b/d of crude. This growth has tightened global oil markets and pushed prices higher. Diesel fuel and jet fuel have experienced the strongest consumption, outperforming gasoline even in the peak weeks of the driving season.
Messy International Oil Markets
In addition to OPEC planned production cuts, global markets have seen an almost absolute collapse of Venezuelan production, as well as occasional issues with Nigeria and Libya. The amount of crude oil exported from Venezuela recently dipped below 700,000 b/d. The other geopolitical unknown will be the severity of new sanctions on Iran from the United States.
U.S. Oil Markets by the Numbers
Diversity has been a dominant characteristic of U.S. and North American markets in 2018, with a return to some broad differences based mostly on geography. There has been widespread coverage of the disconnect between the two main crude oil benchmarks, Brent and WTI. The North Sea Brent market fetched premiums of $10/bbl or more for the first time since the 40-year ban on oil exports was lifted in early 2015. Diversity rewards some refiners while punishing others.
Other Oil Market Influencers
Refiners had a strong first half of 2018 with help on costs that many analysts don’t factor in to their assessments of product cracks – lower RINs credit prices. Year-to-date values for 2018 ethanol RINs (D6) have barely averaged above 25cts and biodiesel RINs (D4) average under 48cts. These numbers compare to D6 quotes above 70cts and D4 values above $1 as the 2017 driving season commenced. For a merchant refiner, one might assume that renewable compliance costs were about $3.30/bbl one year ago, compared with about $1.30/bbl as June 2018 ended. That’s a significant difference.