“The middle of the barrel got much of its ‘mojo’ back in 2017, and that may set the table for a renaissance in diesel and heating oil some 12-24 months from now,” according to a 2018 forecast released by OPIS.
Some other salient observations and predictions from the report are highlighted below.
- Diesel demand was solid in 2017, growing from 2016 levels thanks to multiple catalysts. The ascent of shale plays was a significant factor and research suggests that increased fracking may have added about 150,000 b/d to distillate demand.
- Should diesel retain strong profitability, refiners appear up to the task of making plenty of barrels. U.S. refiners achieved a record distillate output figure of 5.476 million b/d in December. Production consistently topped 5 million b/d and there’s little reason to believe that some small further additions will come in 2018.
- The prize for many coastal refiners lurks in the December 2018 to December 2019 period. Although it may appear early to prepare, the 2020 International Maritime Organization ban of ship’s bunkers (beyond 0.5% or 5,000 parts per million sulfur) has the potential to boost diesel demand substantially in 2019.
- This will not be the year in North America where demand for liquid fuel gets hurt by wider adaptation of electric vehicles. A tipping point is on the horizon, but that horizon is probably two decades away.
- In 2018, OPIS anticipates a slight deterioration of gasoline demand as higher prices and more fuel-efficient vehicles on the road start to impact gasoline demand even as vehicle miles traveled will likely increase.