In its May Global Crude Oil Outlook ESAI Energy points out that the growth in medium and heavy refiner demand was already pushing the OPEC+ deal towards an end by 2019. The U.S. request for more crude oil and Saudi Arabia and Russia’s apparent willingness to respond provides additional rationale. How this “end” is finessed remains to be seen, but clearly the medium and heavy producers of OPEC (besides Venezuela and Iran) will increase production in 2019.
According to ESAI Energy’s Managing Principal, Sarah Emerson, “This refining investment is coming to fruition at the same time as the fastest global expansion of light sweet crude supply in the history of the oil market, driven by the Permian shale basin.”
In 2018 and 2019, crude refiner demand will rise by a combined 2.6 million b/d. To export the volumes that will become available, shale producers would have to capture about half of that growth. Yet more than half of the increase in crude demand will be associated with the new refining capacity looking for heavier crude blends. U.S. shale will need to increasingly compete for existing demand for light sweet crude. This does not bode well for African exporters. Producers are also likely to stash some crude in tanks that are relatively empty today. Both of these developments will contribute to weaker crude oil prices, even if OPEC did not raise output. “This is not a repeat of 2014 and 2015 because inventories are low and OPEC output is constrained by Venezuela, but demand for crude oil by quality will temper the upside for shale exports,” points out Emerson.