We've seen US LPG trade flows to China particularly affected, with some plant run rates beginning to decline. Margins were already under pressure before the trade war and feedstocks like LPG and ethane were the biggest source of demand growth in China. Now, that's shifting to naphtha. Gasoline demand is basically flatlining and diesel demand is more a cyclical issue than structural in China. All in all, we're probably looking at relatively flat demand growth in China, and that's even before we factor in the indirect effects of tariffs. Still, physical premiums are holding up well across the Middle East and Asia markets. Before the tariff announcements started in March, demand in Q1 was picking up.
Why would OPEC+ decide to triple supply increases in May?
The primary audience for this move was the compliance cheats inside the group. This has been discussed within OPEC+ for several weeks. Kazakhstan, Iraq, even the UAE - had significant overproduction in February and March. What's interesting is how divergent the supply numbers are. The only country where there's broad agreement about increased output is Kazakhstan, where the Chevron expansion added 300, 000–400, 000 b/d. What OPEC+ cares most about is market backwardation, and key indicators are showing that physical premiums are still relatively healthy, crude stock levels are still low, and the physical products market is still tight.
How do you interpret Iraq’s plan to elevate its production target to 7mbd?
Today, Iraq’s production is around 4.2 million b/d, and that’s expected to hold steady. The competition in the oilfield services sector has brought down some upstream servicing costs, so there’s quite a bit of ambition to expand upstream. The bottlenecks remain in the midstream and export infrastructure though. Iraq’s political stability will also be critical to watch this year, especially given tensions between the US and Iran. Iraq often becomes a casualty when those tensions flare. It’s also an election year and if fiscal pressures increase and the government cuts what are outsized salaries and pensions, that historically leads to protests.