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Balance in product demand for oil & gas industry to remain tilted toward diesel, gasoline

Oil&Gas Materials 4 September 2020 09:48
Balance in product demand for oil & gas industry to remain tilted toward diesel, gasoline

BAKU, Azerbaijan, Sept.4

By Leman Zeynalova – Trend:

The balance in product demand for the oil and gas industry is likely to remain tilted toward diesel and gasoline, with jet-fuel use muted throughout 2021, Trend reports referring to McKinsey & Co.

“That will drive refiners to try to alter their product mixes, thereby limiting profits and causing swings in crude-quality differentials. Meanwhile, a sequenced reopening of markets could prompt geographic price arbitrage and instability in micromarkets. Cities, such as El Paso, that are normally net importers of fuels could see prices spike if demand exceeds local refinery-production capacity.

“Future waves of the COVID-19 pandemic and any failure of OPEC-plus countries to keep a check on supply could again lead to constraints and significant pressure, not only on prices, but also on the downstream oil and gas industry as a whole.

“The cost of regulatory compliance for oil and gas companies has tripled since the market downturns of the late 1990s. One of the most recent regulatory changes is the International Maritime Organization’s antipollution measure, which restricts the sulfur content of maritime fuels. At the same time, companies are facing an increasingly litigious culture, divided political agendas, and a rise in activism that targets “big oil” and manufacturing.

“OPEC-plus nations have a propensity to act in the interest of their own balance sheets, making for a tenuous alliance. At the start of the COVID-19 pandemic, Mexico, Russia, and Saudi Arabia illustrated how difficult it can be to agree on reciprocal production cuts under duress. And as oil and gas prices have stabilized, the perennial specter of “quota busting” among smaller producers has arisen, potentially undermining compliance among other member nations and causing another drop in prices. That would have a global impact. Continued periods of depressed pricing, for example, could slow Permian Basin activity as unprofitable investments stop. Shifting production volumes would create quicker pricing and demand-market feedback and drive instability. While we expect an average crude ceiling of $40 to $50 per barrel until 2025 under most scenarios, those factors are likely to give the industry a bumpy ride,” said the company.

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Follow the author on Twitter: @Lyaman_Zeyn

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