MOSCOW (MRC) -- The global crisis caused by the coronavirus pandemic will be felt throughout oil’s global supply chains and ripple into other parts of the energy sector, the International Energy Agency (IEA) said in a report, said Reuters.
Oil prices crumbled as the pandemic slashed global fuel consumption, with further pressure from a supply shock due to the end of production cuts from OPEC producers and Russia. Crude oil prices ended a volatile quarter with their biggest losses in history, and declined about 55% in March, the most on record. Prices also plunged to their lowest level since 2002 on Monday.
About 5 million barrels of oil extracted worldwide every day are not attracting high enough premiums to offset the costs of extracting it out of the field, according to the Paris-based IEA agency. Prices available to producers in Western Canada have dropped to single digits, and instances of negative prices have also emerged in parts of North America for other grades, IEA said in the report.
Oil producers have responded by implementing major reductions to their spending on new production, with the initial cuts in the 20%-35% range relative to what was previously planned for 2020, the report said.
IEA had earlier estimated 50%-85% drops in net income for selected producer countries in 2020, compared with 2019, but these declines could be even greater depending on the extent of demand shock.
Many oil majors will re-evaluate their existing portfolios, possibly leading to another wave of refinery closures.
The agency also warned against the implications of oil price collapse on other energy sectors, adding a sustained period of low oil prices would affect the prospects for clean energy transitions such as natural gas.
“Oil at USD25 a barrel would leave some international gas suppliers struggling to cover their operating costs, and the depressed spot market for gas would not provide any relief."
As MRC wrote before, Taiwan’s Formosa Petrochemical Corp plans to operate its refinery at a reduced rate after completing maintenance at some units later this month amid weak margins. The company is expected to restart one of its three crude distillation units (CDUs), its residue fluid catalytic cracker (RFCC) and one of its two residue desulphurizers (RDS) around April 20 after more than a month’s shutdown for scheduled maintenance. After the unit’s restart, Formosa plans to be processing 480,000 barrels per day (bpd) of crude, spokesman KY Lin told Reuters, about 10% below the refinery’s nameplate capacity of 540,000 bpd.
As MRC wrote before, Formosa Plastics' new 1.5 million mt/year cracker in Point Comfort, Texas, came online in H1 2020 and was seen ramping up through January.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 383,760 tonnes in the first two month of 2020, up by 14% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments increased due to the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 192,760 tonnes in January-February 2020, down by 6% year on year. Homopolymer PP accounted for the main decrease in imports.
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