Tank Storage Magazine reports from stunning St Petersburg
In November 350 tank storage professionals came together in the beautiful city of St Petersburg to discuss the tank storage sector at the annual Oil Terminal Conference in Russia.
Jan Edelmann from HSH Nordbank kicked off proceedings with a presentation on the uncertainties within today’s marketplace. Global oil inventories have normalised at their five-year average level, he explained, ‘which is key to OPEC+, as normalised levels of inventories keep oil price volatility low’.
However, in order to avert oversupply that would weaken prices, OPEC+ is talking about cutting supply oil output by up to 1.4 million barrels a day in 2019 to keep global inventory supply stable.
Saudi Arabia, its Gulf allies and Libya have ramped up oil production aggressively in recent months. There is also a new wave of shale supply expected as soon as pipeline constraints are eased. US onshore production growth has already accelerated sharply this year. The US has seen a significant acceleration of rig count, up by 1.4 million barrels per day and US oil output is now at a record high.
Gleb Gorodyankin, editor of Oil Markets at Thomson Reuters echoed this sentiment, by saying that global oil supply will outpace demand through 2019 as a relentless rise in output swamps consumption growth that is at risk from a slowing economy.
The shortfall of Iranian oil due to sanctions has been offset by growing oil production in the US and some OPEC members. Added to this, Russian oil output is also at a post-Soviet high and oil production in Khazakstan is up by 4.8% in Jan-Oct 18.
Despite concerns over weaker than expected oil demand growth, declining fears of dramatically slowing Iranian supply and rising inventories, HSH Nordbank expects oil prices to re-test $80 dollars a barrel, before sequentially declining to the mid-$60s by the end of 2019.
IMPACT OF IMO 2020
As Russia is the world’s largest producer and export of fuel oil, the topic of IMO 2020 was bound to be prominent during this event. A key concern for the fuel market after 2020 is the prospect of a supply glut in high-sulphur fuel oil (HSFO) and how it can potentially be consumed. The value of HSFO is expected to
fall to very low levels due to oversupply and little demand. Russian refineries may opt to use fuel oil for power generation instead and cut exports if fuel oil prices fall to expected levels.
Europe should encounter the least problems apart from the US in complying with IMO 2020, Gorodyankin explained. Refineries and blenders in the region have already had experience in adjusting to cater for the shift in demand. The former financial and risk business of Thomson Reuters, Refinitiv, forecasts demand for 0.5% marine fuel in 2020 for bunkering in Europe will be 1.06-1.23 million metric tonnes per month.
Thomson Reuters Kortes believes that fuel oil production in Russia in 2018 is expected to be around 45-46 million metric tonnes. This is around 5.5 million metric tonnes lower than 2017 production.
Many Russian refineries are scheduled for modernisation, but this is unlikely to happen before 2020. Russian refineries do not have any specific plans for marine fuel desulphurisation and upgrades are prominently geared towards tax incentives imposed by the government.
Refinery modernisation is going slowly but will have a big impact on oil products exports from Russia in the mid-term.
EUROPE TO RELY MORE HEAVILY ON RUSSIAN OIL PRODUCTS
As a net importer of diesel/gasoil, Europe relies on imports from Russia, the US, the Middle East and Asia. The monthly average deficit for diesel/gasoil in Europe was 19.52 million bbls in 2017. If the refinery capacity in Europe stays at current levels and demand grows on average by 1.6% year-on-year, in line with the expected GDP growth of Europe, the deficit should reach a monthly average of 27.26 million bbls by 2020.
The demand for gas oil products for blending with fuel oil will grow with IMO 2020.
As new regulations restrict sulphur content in bunker fuel to 0.5%, the distillate deficit will increase and Europe will have to rely even more on imports into the region.
TRUMP CAUSES CHAOS
Interestingly despite all the changes happening in today’s marketplace, Joel Hanley senior director, European & African Oil at Platts, said the most disruptive factor impacting the market is Trump on twitter, concluding: ‘He makes the market nervous and causes unnecessary volatility.’
Next year’s Oil Terminal conference will return to St Petersburg on 14-15th November 2019.