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CAN WE CUT THE GLUT? IS DEMAND UP TO THE TASK OF
SHRINKING THE OIL OVERHANG?
Matthew Kohlman
Senior Managing Editor
Platts, Americas Refined Products
20 April 2016 2
• US crude and product stocks take turns reaching records
• Can US gasoline demand again save the day?
• Refinery margins slip for gas; will US drivers hit the road hard enough?
• Time for winter: Diesel demand turns to Latin America
• El Nino stalls US demand, but could reverse be true down south?
• Propane provides textbook case of exports thinning stocks
OUTLINE: OIL SUPPLY/DEMAND
Editorial and market assessments are conducted
with complete Independence & Impartiality
20 April 2016
PLATTS – AN INTRODUCTION
NOT JUST OIL
20 April 2016
NEWS, ANALYSIS, INSIGHT AND MORE
20 April 2016
PRICE ASSESSMENTS
Focus, Impact and Relevance
– Platts prices are referenced in
term contracts.
– Futures settlements are often
tied to Platts spot market
assessments.
– Derivatives “price out” against
Platts spot price assessments or
futures settlements.
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Crude
Products
7
SUPPLY: CRUDE, PRODUCTS GLUT
• In last two years, record crude stocks (minus SPR) in spring led to
…
• … record product stocks in fall. But come this spring …
• … crude is at a record and products already near record.
1,0
00
bb
ls
Source: EIA
Average: Crude Products
2010 352.7 738.1
2011 348.7 711.8
2012 365.6 718.1
2013 377.1 728.5
2014 374.9 722.0
2015 461.5 791.3
Q1 2016 510.8 830.7
million barrels
SUPPLY: CRUDE, PRODUCTS LINE UP
TOGETHER
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000• Added together, crude and products are almost a straight line higher
• US reflecting global supply: floating storage, longer cargo trips, etc.
• Crude supply well-documented, with little relief: US shale, Iran, OPEC, Russia Source: EIA
1,0
00
bb
ls
9
DEMAND: US CHEAP CRUDE = STRONG
MARGINS Supply – attractive margins
High cracks boost distillate output Gasoline takes lead in 2015
Demand – global growth Domestic demand
-Post-recession highs Exports swamp imports
-New USGC Export ULSD cargoes Competitive advantage -LatAm refinery troubles -MidEast, Russia slowly emerge Alternatives also slow to emerge
Natural gas? Biofuels? Solar?
USGC product cracks vs. LLS crude
$/b
0
5
10
15
20
25
30
35
1/2
/20
15
2/2
/20
15
3/2
/20
15
4/2
/20
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5/2
/20
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6/2
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8/2
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9/2
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10
/2/2
015
11
/2/2
015
12
/2/2
015
1/2
/20
16
2/2
/20
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3/2
/20
16
$/b
bl
Gasoline vs. ULSD cracks
ULSD
0
5
10
15
20
2011 2012 2013 2014 2015 Q1 2016
ulsd
jet
heat
gas
Source: Platts
• Gasoline dropped near $2/gal at the pump in early 2015, causing
drivers to drive more, and buy more SUVs, trucks, etc.
• Production jumps, stocks drop – called global savior for oil prices
• One-off? US prices drop below $2 by early 2016, but stocks high
DEMAND: GASOLINE TO RESCUE IN 2015
• Worry that stock-building is
behind the price rise
• Indications that true driving
season yet to begin
• New cars – even SUVs –
are 20% more fuel efficient
• EIA forecasts $2.04 avg,
and smaller rise in
consumption • 120,000 b/d more y-o-y
• 260,000 b/d in 2015
DEMAND: STORAGE TANKS, NOT CAR
TANKS?
0
50
100
150
200
250
USGC conventional gas spot market (cts/gal)
Source: Platts
DEMAND: GASOLINE/DIESEL RECOVERY
• Gasoline and diesel demand
peaked in 2007
• Gasoline recovery is real –
July 2015 saw a return to
near 2007 levels for demand
• Distillate demand struggling
– slight recovery, but the
warm winter dropped
demand to multi-year low
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U.S. ProductSupplied of DistillateFuel Oil Mbbl/d
U.S. ProductSupplied of FinishedMotor GasolineMbbl/d
20 April 2016 12
Source: EIA
DEMAND: WINTER BLUES
• After two harsh winters
… El Nino appears
• Warm winter in US, and
much of world, cratered
demand, popped stocks
• Forecast for the follow-
up, La Nina, to further
disrupt commodities
• Demand otherwise tracks
GDP, which is tepid
14
US DISTILLATES DRIVE REFINERY
EXPANSIONS
-5
0
5
10
15
20
25
1990 2000 2005 2010 2014 2015
CDU
Vacuum distill
FCC
Cat Reforming
Hydro/Desulf
Linear(Hydro/Desulf)
Source: EIA
• Example: Valero system: 33% distillates in 2010 to 43% in 2015
– Distillates to be at 1:1 ratio with gasoline production
• New hydrocrackers at Port Arthur, TX, and St. Charles, LA MBD
• Distillates lead pack
• Top destinations are
France, Netherlands,
Chile, Ecuador,
Mexico
• Gasoline sees growth
• Top destinations are
Canada, Mexico,
Colombia, Panama
• US exports entire barrel
• Naphtha, LPGs, resid,
petcoke, and more
DEMAND: PRODUCT EXPORTS GOING
STRONG
20 April 2016 15
Source Platts cFlow
DEMAND: US PRODUCT EXPORTS
• Latin America has been
success story for US
exporters
• Over half of all distillates
• Not dependent on open arb
• Mostly done through tenders
• In 2015, heard 31 tenders for
Q1 and 45 in Q2
• In 2016, heard 40 tenders for
Q1, and talk of more in Q2
• Dry El Nino = less hydropower
DEMAND: LATIN AMERICAN WINTER
18
DEMAND: EXPORT PROPANE SHOWS WAY
• US propane market
looked vulnerable, with
seasonal stocks piling
up
• Then expanded export
facility opens at
Enterprise in December
• Despite warm winter –
and unlike distillates –
stocks drop sharply
20
FLAT PRICE DROPS, BUT SO DO
DIFFERENTIALS
• Jet ex: USGC spot price cut in half
• Differentials hit record low in 2015, and stay
weak
Source: Platts
Figures in cents/gal Left side (blue) is flat price Right side (red) is differential to NYMEX ULSD futures
Q&A
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