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Moving towards surplus crude?

Hydrocarbon Engineering,

PIRA Energy Group has reported that the growth in crude production in the Atlantic Basin is likely to have a profound impact on regional crude supply and demand balances. In the US, crude production growth is being driven by the shale and tight oil revolution along with increased oilsands development in Canada. Refinery runs in these countries declined after peaking in 2005 – 2007, however PIRA now expect them to slowly resume growth with increases in the US and Latin America more than offsetting declines in Europe. But, PIRA also predicts that the projected growth in crude production is much greater than the increase in refinery runs. As a result, a sizeable crude surplus is likely to develop within the region, and crude will be forced to seek markets elsewhere, primarily in rapidly growing Asian countries.

Ringing the changes

The above changes are already beginning, as increasing volumes of African crude that is no longer being shipped to the US being sent to Asia. Also, the former FSU and Latin America are actively seeking to expand sales to Asia, as are Canadian producers, which are looking to build pipelines to the Pacific Coast in order to export their crude to Asia.

Inter regional crude differentials are also expected in the Atlantic Basin as it moves from crude short to increasing length which will allow greater movement of regional crude to Asia and discourage imports of Middle Eastern crude to the Atlantic Basin. As a result, crude prices are expected to be lower in the Atlantic Basin than in Asia Pacific for comparable grades. PIRA expect the Brent-Dubai spread, a key measure of the relative incentive to supply Asian refineries with the Atlantic Basin or from the Middle East, to stay narrower than it otherwise would have been.

Adapted from a press release by Claira Lloyd.

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