The global economy continued to grow in 2018, while refining environment slightly deteriorated.
Global Economy1 and Petroleum Industry2
In 2018, the growth rate of the global economy remained at a high level (2.9% estimate) marginally lower versus last year (3% in 2017) driven by commercial and industrial activity. Unemployment continued to decline and for many countries came at the lowest levels since the start of the global economic crisis. GDP growth in advanced economies declined marginally by 0.1% to 2.2% and in emerging economies from 4.3% in 2017 to 4.2% in 2018. The factors that affected growth were trade tensions, rising borrowing costs for both developed and emerging economies, as well as global geopolitical developments - U.S. sanctions against Iran.
In Euro area, GDP growth slowed considerably to an estimated 1.9%, below expectations and down 0.5% compared to 2017, as exports slowed due to strong euro and declining demand. In Italy, concerns about the stability of the financial system and political developments increased the country's borrowing costs.
In the US, growth is estimated to have reached 2.9% in 2018, higher than both forecast and 2017, driven mainly by fiscal policy and domestic demand, with the unemployment rate at the lowest of the last 50 years. The US Federal Reserve continued to normalize monetary policy in 2018, further increasing interest rates.
With regard to emerging economies, growth in China, which remains strong, is estimated to have reached 6.5% in 2018 (down 0.4% compared to 2017), as industrial output and exports were affected by trade tensions, mainly with the US and a slowdown in certain economies. In Turkey, economic activity in 2018 declined sharply (3.5% compared to 7.4% in 2017), reflecting the sovereign debt crisis, increased political uncertainty and reduced confidence that led to a significant currency depreciation.
€/$ Exchange rate
Average 2018: 1.18 €/$
World oil demand growth is estimated to have increased by 1.5 mbd, in 2018, taking global demand to 98.79 mbd. In 2019, it is expected to increase by 1.29 mbd, exceeding 100 mbd. Demand in both European and Asian OECD countries was affected by high oil prices and a slowdown in economic activity. On the contrary, demand in North America was strong, supported by the expansion of industrial activity (increased petrochemical capacity) and economic growth.
Global oil production in 2018 increased mainly due to non-OPEC production growth of 2.5 mbd, with the US, Canada, Russia and Kazakhstan being the key contributing countries.
This partly offset the reduced OPEC production (-1.1 mbd) compared to 2017. Following an OPEC decision in January 2019, its members will proceed to a total reduction of 1.2 mbd aiming to stabilize prices. The increase in supply is expected from countries outside OPEC for 2019 as well.
Brent crude oil averaged $72/bbl in 2018, up 29% vs 2017, with significant volatility throughout the year, peaking above $80/bbl in the beginning of 4Q18, before dropping significantly below $50/bbl at the end of the year. US production growth, geopolitical developments (tensions in Middle East, resumption of US sanctions against Iran), production control by OPEC, as well as the macroeconomic environment were the main pricing drivers in 2018.
In terms of crude oil differentials, the Brent-WTI averaged $6.8/bbl in FY18, significantly higher than 2017 due to the continued increase in US production. Brent-Urals spread in 2018 increased by $0.2/bbl, to $1.2/bbl with significant volatility due to fluctuation in the supply of high sulphur crude oil in the region.
Brent Crude oil Prices ($/bbl)
Average 2018: 71.5/bbl
Benchmark refining margins3
Benchmark margins for Mediterranean refineries were weaker in 2018 due to supply/demand balances of products and Urals crude, which drive benchmark margins, as analysed below. Med benchmark Cracking margin averaged $4.5/bbl in 2018, $0.8/bbl lower y-o-y and Med Benchmark Hydroskimming margin $3.4/bbl, marginally reduced by $0.1/bbl compared to 2017.
Brent - Urals Spread ($/ bbl)
Average 2018 $1.2/bbl
Oil product cracks4
Most product cracks were lower vs 2017, with the exception of diesel, which recorded a significant increase (+23%) due to higher demand and, at the same time, reduced availability of high sulphur crude, especially in the Mediterranean. Light-ends cracks were weaker throughout the year, with a drop to multi-years’ lows over the last months of the year, due to oversupply and declining demand, driving gasoline to an average $2.8/bbl – at 4Q18 - (FY18 $8.1/ bbl).
Following the recovery of the Greek economy in 2017, growth accelerated in 2018 (estimating an increase in nominal GDP of 2.5% vs 2.1% in 2017), mainly due to an increase in exports and private consumption. Economic activity, completion of the EU program review and strengthening of bank liquidity, have improved confidence and have allowed the lifting of most capital controls. In addition, employment growth and declining of unemployment rate have further improved economic outlook.
Greek bonds yields remained high, with increased volatility, due to political and macroeconomic developments in regional economies (mainly Italy and Turkey), but also due to uncertainty for high taxation, wages’ growth, as well as delays in implementing reforms and privatizations that may negatively affect the prospects of the Greek economy.
Domestic fuel demand in 2018 amounted to 6.7 million tons, according to official data, a 3% decrease compared to 2017, mainly due to a 17% decrease in heating oil consumption. Auto-fuels demand remained stable, with diesel up 3%, offsetting a corresponding 2% drop in gasoline.
1 Source: World Bank, World Economic Outlook Update, January 2019
2 Sources: OPEC, “Monthly Oil Market Report”, December 2018 / IEA, Oil Market Report, December 2018
3 Source: Reuters, January 2019
4 Based on Brent prices
5 Source: Hellenic Statistical Authority, March 2019 / Hellenic Ministry of Environment and Energy, January 2019