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Oil plunges to 14-month lows as coronavirus spread outside China sparks demand fears

March 02/2020

MOSCOW (MRC) -- Dated Brent was assessed by S&P Global at USD50.49/b Friday, the lowest since December 31, 2018 and down nearly 22% from January 20, reported S&P Global.

Year-ahead Brent futures settled at a 19 cents/b contango to the front month Friday, flipping from a USD1.75/b backwardation February 21.

The one-year NYMEX WTI spread finished Friday in a USD1.41/b contango, compared to an 81 cent/b backwardation February 21.

The Singapore jet crack spread against Brent ended Friday at 5.68/b, down from USD11.34/b January 20.

The Rotterdam jet fuel crack against Brent ended Friday at USD8.58/b, down from USD14.17/b January 20.

The New York jet crack ended Friday at USD10.024/b, down from USD14.19/b January 20.

Oil prices moved sharply lower last week amid a renewed focus on demand destruction following a flurry of new coronavirus cases outside of China.

Now  ICE front-month Brent futures settled at USD50.52/b Friday, down USD7.98 on the week, and down 22.5% since January 20, when commodities markets began to react to the virus.

S&P Global Platts Analytics has adjusted its 2020 global oil demand growth outlook down to 860,000 b/d, marking the weakest forecast since 2011. Asian refined products demand is expected to grow by 380,000 b/d in 2020, "posting its weakest growth since the global financial crisis in 2009," according to Platts Analytics.

Globally, 84,161 cases of Covid-19 coronavirus have been confirmed in 59 countries as of Friday, according to University of Virginia data.

While the overall number of new cases continues to fall, the growth rate outside of China accelerated last week, with major outbreak emerging in South Korea, Italy, and Iran.

"COVID-19 is arguably the biggest risk to global growth since the Great Recession," warned Platts Analytics in a recent update. "The rolling geographic nature of the virus's spread means its duration could be extended into the second quarter."

Major stock indicies fell into correction territory with the S&P 500 closing Friday down 11% from week-ago levels.

S&P Global Platts Analytics has adjusted its 2020 global oil demand growth outlook down to 860,000 b/d, marking the weakest since 2011. Asian refined products demand is expected to grow by 380,000 b/d in 2020, its weakest since 2009.

Key international airlines have suspended or reduced flights due to the virus, reducing jet fuel demand. United Airlines and Delta this week extended route modifications beyond China, while IAG, the parent company of British Airways, Iberia, Aer Lingus and Vueling, Friday said it would significantly cut capacity on its routes to and from Italy in March and would announce further capacity cuts soon.

While Sentinel Midstream's Texas GulfLink deepwater crude export terminal project remains on schedule, the spread of the virus comes just as the company is trying to nail down contracted shippers and buyers, especially in Asian markets, putting talks on hold.

The Port of Corpus Christi expects February crude exports to slip from January's record-high 1.38 million b/d due to ripple effects from coronavirus.

European refiners are starting to cut runs and alter their refining yields as middle distillate margins sink.

Demand for Chinese mainstays such as Russian ESPO Blend crude and medium sour Oman is expected to take a hit in February, with trade and economic activity declining.

Refinery run rates at China's state-owned oil giants - Sinopec, PetroChina, CNOOC and Sinochem - fell to a record low 67% of nameplate capacity in February, from 85% in January. Run rates for independent refineries in Shandong plunged to 35-36% from 63.5% in January, with 15 refineries idle in February.

With Asia's crude buying curtailed while the region tackles the outbreak, more oil from West Africa is being offered in Europe.

OPEC still planning to meet in Vienna March 5-6, but is monitoring situation after coronavirus case was reported there. A technical committee February 7 recommended deepening the OPEC+ 1.7 million b/d production cut accord by 600,000 b/d through the end of Q2. Russia has yet to endorse the plan.

As MRC informed before, state-owned PetroChina shut its Guangxi Petrochemical in southern Guangxi province on February 9 for scheduled 50-day maintenance. The maintenance should help the refinery to offset stock pressure after product demand slumped due to the coronavirus outbreak.

We also remind that  Sichuan Petrochemical (part of PetroChina) undertook an emergency shutdown at its naphtha cracker in Sichuan province of China on July 11, 2018 owing to a gas leak at its natural gas supply pipeline. Further details on duration of the outage could not be ascertained. Located at Sichuan province of China, the cracker has an ethylene capacity of 800,000 mt/year.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,093,260 tonnes in 2019, up by 6% year on year. Shipments of all PE grades increased. PE shipments rose from both domestic producers and foreign suppliers. The estimated PP consumption in the Russian market was 1,260,400 tonnes in January-December 2019, up by 4% year on year. Supply of almost all grades of propylene polymers increased, except for statistical copolymers of propylene (PP random copolymers).
Author:Margaret Volkova
Tags:Asia, Europe, PP, PE, crude and gaz condensate, PP random copolymer, propylene, ethylene, petrochemistry, CNOOC, PetroChina, Sinochem, Sinopec, China, Russia, USA.
Category:General News
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