Analysts Outline Industry Themes for 2019
Analysts at Fitch Solutions Macro Research (FSMR) have outlined five key themes for oil and gas in 2019 in a new report, which was sent to Rigzone.
The company’s five key themes, according to the report, are as follows:
Through 2019 FSMR analysts expect both emerging market (EM) and developed market (DM) demand will moderate to new levels of normal, the report reveals.
“Softening Chinese demand shift[s] … EM demand to slightly lower levels of growth, whereas DM demand will dip as U.S.-led support recedes in the face of ongoing growth headwinds from rising trade tensions,” the analysts stated in the report.
“Importantly, we see EMs retake the mantle as the engine of global demand growth. This will hold global growth in positive territory,” the analysts added.
Market Management from OPEC Bolsters Oil
Market management by OPEC and Russia will “heavily influence” prices to keep oil above $70 for Brent, according to the analysts.
“OPEC’s renewed leadership in actively managing global oil supply will continue to support prices as reactionary intervention will balance markets. Fiscal break evens for several OPEC members would be exceeded with oil at $70 with Saudi Arabia balanced at $73 according to the IMF,” the analysts said in the report.
“We believe that targeted prices would range between $70 to $80 to align with these broad measures of a desired price for oil producers,” the analysts added.
Ex-OPEC Supply Picture to Strengthen
The global supply picture, excluding OPEC member countries, will “substantially strengthen” in 2019, according to FSMR analysts.
“Oil supplies have been growing rapidly in 2018, as record output from producers such as Russia and the United States more than offset losses from Iran and Venezuela,” the analysts said in the report.
“We expect most of global supply growth to be accounted for by non-OPEC countries, which output we forecast to grow from just under two million barrels per day over 2019,” the analysts added.
The main contributors to this supply growth will be U.S. onshore plays, according to the analysts.
Exploration Stability Takes Hold
2019 will see a pick-up in exploration activity versus 2018 but the gains will be limited, the analysts stated in the report.
“On an annual average basis, revenues will be boosted by marginally higher oil prices, while still-compressed services costs will flatter margins and bolster cash flows,” the analysts said.
“This will give companies greater flexibility to increase their CAPEX and assume more risk. There are signs that exploration is beginning to recover and this trend will continue into the new year, with increased licensing activity, data acquisition and drilling globally,” the analysts added.
Despite rising revenues and the pressing need for reserves replacement, companies will face continued constrains on their exploration spending, FSMR analysts stated.
“Financial discipline continues to be a key concern for oil companies globally and will weigh on CAPEX growth next year. That said, improved capital efficiency and lower services cost means companies can effectively do more with less,” the analysts added.
Crack Spreads Remain Diverged
Diesel cracks will continue to provide refiners a buffer against declining gasoline margins, according to the analysts.
“We expect diesel demand to increase from growth in the transportation of goods, shipping and heavy construction. The implementation of IMO 2020 will further increase demand as low sulphur fuel oil which will be needed by shippers to comply and is expected to be in short supply,” the analysts stated in the report.
“Gasoline cracks will continue to suffer as excess supply and waning demand create downside pressures. In addition, the higher demand for middle distillates especially diesel and jet fuel will stimulate more supply which will exacerbate surpluses of gasoline,” the analysts added.
“We expect that the imbalance in gasoline supply and demand will continue beyond 2019 with diesel spreads supporting refiners’ revenues,” the analysts continued.
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