Distillate Fuel Oil Market Set to Tighten

U.S. refineries are struggling to meet booming demand for distillate fuel oil at home and in export markets which will leave the distillate market very tight in 2018.

Even if the northern hemisphere winter is only averagely cold, the distillate market looks set to enter 2018 with lower than average stocks and fast-growing demand, which should keep prices and refining margins firm.

The gross refining margin for turning Brent into U.S. heating oil has climbed to almost $19 per barrel from a recent low of less than $11 in May, despite record U.S. refinery production of distillate.

Refiners, therefore have a strong commercial incentive to maximize distillate output, which should ensure crude intake remains high, and spread tightness into the crude market.

U.S. refiners processed a seasonal record 16.6 million barrels per day (bpd) of crude last week, which was 600,000 bpd higher than at the same point in 2016 and 1.8 million bpd above the 10-year average.

And they produced a seasonal record 5.2 million bpd of distillate fuel oil, which was 300,000 bpd above 2016 and 600,000 bpd above the decade average.

But it was not enough to prevent distillate stocks falling by another 800,000 barrels to less than 125 million barrels, according to the U.S. Energy Information Administration.

Distillate stocks have shrunk by 38 million barrels since the start of the year compared with a seasonal decline of less than 10 million in 2016 and a ten-year average of just 5 million.

Stocks are now 24 million barrels below the prior-year level, and 9 million barrels below the decade average, at levels that have not been seen since 2012-2014.

The distillate market was heavily oversupplied at the start of 2017 but has become progressively undersupplied in the course of the year.

Domestic consumption has been running well above prior-year levels and the long-term average in most weeks since March.

But it is the phenomenal strength of exports that is causing stocks to continue drawing down even as refineries maximize output.

Exports over the last four weeks were running at a record 1.5 million bpd, an increase of more than 400,000 bpd or almost 40 percent compared with the same period in 2016.

Distillate stocks look severely depleted even before the main winter heating season begins in North America and Western Europe.

-India State Oil Firms Betting on Natural Gas

 

India’s state oil refiners are planning an aggressive push into natural gas in coming years to meet Prime Minister Narendra Modi’s goal of making the fuel a bigger part of the country’s energy mix.

State-owned oil companies - Indian Oil, Bharat Petroleum and Hindustan Petroleum - are planning to raise gas contributions to between 5 and 15 percent of their incomes over the next few years, up from nearly none now, company executives said.

This in line with a government target to raise the natural gas portion of India’s primary energy mix to 15 percent by 2030, up from 6.5 percent now, to help meet climate targets and rein in rampant pollution.

The increase would come mostly at the expense of coal, which is dirtier than gas and is India’s most-used energy source. Liquefied natural gas (LNG) imports will cover the greater part of the growth, although the government also hopes to recover untapped domestic reserves off its east coast.

“Gas is an important part of our portfolio going forward,” M.K. Surana, chairman of HPCL told Reuters, noting that the government push was expediting the development of gas in India.

With China, Pakistan and Bangladesh also increasing gas use, the surge in Asian demand is expected to help eat up a global glut of LNG supplies by 2021-2022.

BPCL, another leading Indian refiner, sees natural gas pulling in 5 to 10 percent of its overall revenue in less than a decade, from barely any now, its director of refineries, R. Ramachandran, told Reuters.

The state oil companies’ plans involve building LNG import terminals and domestic pipelines, and bidding to set up urban gas networks across potential major demand canters, particularly in the eastern part of the country.

India’s natural gas consumption is expected to rise to 70 billion cubic meters (bcm) by 2022 and 100 bcm by 2030, according to a government think tank and the Oxford Institute of Energy Studies, up from 50 bcm now. India burns just 7 percent of what top user the United States consumes in a year with about a quarter of India’s population.

At 100 bcm, India would move into the top 10 of global natural gas consumers at current consumption figures.

Statoil to Step Up Exploration off Norway

 

Norway’s Statoil will ramp up its search for oil and gas deposits on the Norwegian continental shelf next year, the company said.

Oil companies are stepping up efforts to find more oil and gas offshore after cutting exploration budgets following the oil price drop since 2014, meaning more work for owners of drilling rigs, such as Transocean or Seadrill.

Majority-state owned Statoil is emerging from the downturn as one of the most active offshore explorers.

“We are looking at drilling 25 to 30 wells in Norway in 2018. That’s an early ambition we have and it depends on some approvals,” Statoil’s spokesman said.

The number includes both Statoil and partner-operated wells, and compares with 16 to 18 exploration wells the company planned to drill off Norway in 2017.

Statoil has previously said it planned to drill five wells in the Barents Sea in 2018, which is estimated to hold the most undiscovered resources offshore Norway.

This year, the company planned to drill about 30 exploration wells globally at a total budget of $1.3 billion.

Statoil declined to give a total number planned for 2018, as some were still in the planning stage.

In 2016, Statoil drilled a total of 23 exploration wells as operator and partner, including 14 offshore Norway.

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