Iraq agrees with oil majors to cut output, but short of OPEC+ target

MOSCOW (MRC) -- Iraq is cutting its oil output by around 700,000 barrels per day (bpd), a third less than required under an OPEC+ supply pact, after it failed to persuade international oil majors operating its giant fields to agree to deeper reductions, reported Reuters.

Iraq has agreed with oil majors operating its five giant southern oilfields to cut 300,000 bpd, Iraqi oil officials told Reuters on Wednesday. It will also lower production from other fields which it operates alone, bringing the total reductions to slightly below 700,000 bpd, they said.

The country’s oil output cut target under the OPEC+ supply reduction pact is 1.06 million bpd for May and June.

OPEC and its allies, a group known as OPEC+, agreed last month to slash output by 9.7 million bpd for May and June, a record production cut.

The agreement with the oil majors came after what Iraqi officials described as “a defensive position” by the international oil companies developing Iraq’s southern fields.

The refusal by the oil majors to cut more oil indicates the difficulties which are facing Iraq to fully comply with the OPEC+ crude supply reduction pact.

Two senior Iraqi officials who are part of the talks with foreign companies said they had to agree this deal to avoid paying the companies for the curtailed production.

Foreign oil companies, such as BP, Exxon Mobil Corp , Italy’s Eni and Russia’s Lukoil, who are developing Iraq’s giant southern oilfields operate under service contracts which pay them a fixed dollar fee for their output and are also compensated in crude cargoes.

This type of contract shields oil companies against sharp falls in oil prices. But it also means that with the OPEC cuts, Iraq ends up with less crude to sell bringing lower revenue to its state budget.

“Companies accepted to cut around 300,000 bpd which is considered nominal,” said a senior official at Iraq’s Basra Oil Company (BOC) who has direct knowledge of the discussions with the oil majors.

“We are in a critical situation where we cannot exert more pressure on the foreign firms and at the same time, we have to respect the OPEC agreement which is very difficult to fully implement” said another senior BOC official, who also asked not to be named.

Iraq has often lagged other OPEC+ producers in their previous deal to cut production and had not complied fully with its agreed output targets.

“We are optimistic that OPEC and other producers will understand Iraq’s situation when we meet next month,” the second BOC official said.

At least one European and two Asian customers will receive reduced oil supplies from Iraq in June, industry sources familiar with the matter said, as OPEC’s No.2 producer cuts some of its output.

European oil major Total’s allocation of Basra crude will be cut by over 25% in June and India’s Bharat Petroleum Corp will get about 25% less oil from Iraq.

South Korea’s GS Caltex was also told that it would receive less in June.

As MRC reported previously, global oil consumption cut by up to a third. What happens next in the oil market depends on how quickly and completely the global economy emerges from lockdown, and whether the recessionary hit lingers through the rest of this year and into 2021.

Earlier this year, BP said the deadly coronavirus outbreak could cut global oil demand growth by 40 per cent in 2020, putting pressure on Opec producers and Russia to curb supplies to keep prices in check.

We remind that, in September 2019, six world's major petrochemical companies in Flanders, Belgium, North Rhine-Westphalia, Germany, and the Netherlands (Trilateral Region) announced the creation of a consortium to jointly investigate how naphtha or gas steam crackers could be operated using renewable electricity instead of fossil fuels. The Cracker of the Future consortium, which includes BASF, Borealis, BP, LyondellBasell, SABIC and Total, aims to produce base chemicals while also significantly reducing carbon emissions. The companies agreed to invest in R&D and knowledge sharing as they assess the possibility of transitioning their base chemical production to renewable electricity.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 557,060 tonnes in the first three month of 2020, up by 7% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments rose because of the increased capacity utilisation at ZapSibNeftekhim. Demand for LDPE subsided. At the same time, PP shipments to the Russian market was 267,630 tonnes in January-March 2020, down 20% year on year. Homopolymer PP and PP block copolymers accounted for the main decrease in imports.
MRC

MOSCOW (MRC) -- Recognizing the importance of proper personal protective equipment (PPE) in the fight against COVID-19, MEGlobal Fort Saskatchewan donated 40 sets of mono goggles to the Fort Saskatchewan Community Hospital Foundation this week, said the company.

Andrew Maile, MEGlobal North America Responsible Care Leader, said MEGlobal evaluated its current inventory and determined that after ensuring an adequate supply for employees, the remaining 40 sets of eye protection could be given to the hospital.

“We all have a role to play in preventing the spread of COVID-19, whether that means staying at home, social distancing, or providing resources to the people who need them,” he said. “If this PPE can prevent one person from catching the virus, that could mean a big impact."

Laura Houghton, Foundation Administrator for the Fort Saskatchewan Community Hospital Foundation, said the donation will be put to good use.

“The goggles are especially needed for the nurses that do not wear glasses,” she said. “This helps relieve the burden on AHS financially especially when shortages occur. It also calms and decreases the anxiety levels for our staff knowing they have the protective equipment available to wear."

She added that not only is the equipment helpful, but it also elevates the morale of the health care staff to know that local businesses appreciate their efforts. "This donation is very much appreciated by the staff and they feel very grateful that you, the community, are supporting front line workers," Houghton said.

MEG is one of the main feedstocks for the production of polyethylene terephthalate (PET).

As per MRC's ScanPlast report, Russia's estimated PET consumption decreased to about 53,890 tonnes in February 2020, down by 3% year on year. 100,830 tonnes of PET chips were processed in Russia in the first two months of 2020. February PET production in Russia dropped to 45,800 tonnes, down by 5% year on year. Russia's overall PET production fell in January-February 2020 by 13% year on year.

MEGlobal is a global leader in the manufacture and marketing of ethylene glycol (EG). With a worldwide network, MEGlobal markets its products throughout Asia, the Americas, Europe and the Middle East. MEGlobal embraces the principles of Responsible Care®, focusing on the safety of employees, neighbors, communities and the environment in every aspect of its operations. As a subsidiary of EQUATE Petrochemical Company (EQUATE), MEGlobal is part of the EQUATE Group which is the world’s second largest producer of EG.
MRC

MOSCOW (MRC) -- Royal Dutch Shell Plc’s Norco, Louisiana, refinery is operating at about 80% of its 225,300 barrel-per-day (bpd) capacity, reported Reuters with reference to sources familiar with plant operations.

A Shell spokesman declined to comment.

The Norco refinery cut production in April, the sources said. Shell’s 211,270 bpd-capacity Convent, Louisiana, refinery, has as well reduced production by 100,000 bpd with the shutdown of a small crude distillation unit (CDU).

As MRC informed earlier, Pilipinas Shell Petroleum Corp said it will shut down its 110,000-barrel-per-day Tabangao refinery in the Philippines for one month from mid-May as the coronavirus pandemic has hammered oil demand.

We also remind that Shell Singapore restarted its naphtha cracker in Bukom Island this week following a two months maintenance shutdown since the beginning of October 2019. Thus, this cracker was taken off-stream for the turnaround on 1 October 2019. The cracker is able to produce 960,000 tons/year of ethylene and 550,000 tons/year of propylene.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 557,060 tonnes in the first three month of 2020, up by 7% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments rose because of the increased capacity utilisation at ZapSibNeftekhim. Demand for LDPE subsided. At the same time, PP shipments to the Russian market was 267,630 tonnes in January-March 2020, down 20% year on year. Homopolymer PP and PP block copolymers accounted for the main decrease in imports.

Royal Dutch Shell plc is an Anglo-Dutch multinational oil and gas company headquartered in The Hague, Netherlands and with its registered office in London, United Kingdom. It is the biggest company in the world in terms of revenue and one of the six oil and gas "supermajors". Shell is vertically integrated and is active in every area of the oil and gas industry, including exploration and production, refining, distribution and marketing, petrochemicals, power generation and trading.
MRC

MOSCOW (MRC) -- Oil prices fell as investors worried about a second wave of coronavirus infections, but new output cuts from Saudi Arabia tempered worries about oversupply and limited price losses, reported Reuters.

Brent crude futures fell USD1.04, or 3.4%, to USD29.93 a barrel by 12:58 p.m. EDT (1658 GMT). US West Texas Intermediate (WTI) crude fell 30 cents, or 1.2%, to USD24.44 a barrel on 11 May.

Global oil demand has slumped by about 30% as the coronavirus pandemic has curtailed movement across the world, leading to growing inventories globally. While crude futures have fallen more than 55% this year because of the virus, prices have gained the past two weeks, supported by a modest rebound in demand as some travel restrictions are eased.

However, fears about a second wave of the virus weighed on futures.

Germany reported on Monday that new coronavirus infections were accelerating exponentially after early steps to ease its lockdown. Elsewhere, Wuhan, the epicentre of the outbreak in China, reported its first cluster of infections since the city's lockdown was lifted a month ago.

South Korea also warned of a second wave of the virus on Sunday.

"Traders stepped back from last week's enthusiasm, contemplating the possibility of a second wave of the epidemic, which, if realised, could drive demand lower than the market hopes and expects for the second half of 2020," said Rystad Energy's head of oil markets, Bjornar Tonhaugen.

Prices received a boost, however, after a Saudi energy ministry official said the ministry has directed national oil company Saudi Aramco to reduce its crude oil production for June by an extra 1 million barrels per day.

The reduction is on top of a pact by the Organization of the Petroleum Exporting Countries (OPEC) and allied producers - a group known as OPEC+ - to cut production from May 1 by about 10 million bpd in an effort to support prices.

"It's a balance between OPEC production cuts versus concerns about the possibility of a second wave of coronavirus," said Phil Flynn, senior analyst at Price Futures Group. "It's those two emotions that have been bouncing the market back and forth today."

In the United States, fears that the country is running out of oil storage space sent WTI prices into negative territory last month, prompting some U.S. producers to rein in output.

The number of operating oil and gas rigs in the world's largest oil producer last week fell to 374, a record low according to data going back to 1940 from energy services company Baker Hughes Co.

As MRC wrote before, global oil consumption cut by up to a third. What happens next in the oil market depends on how quickly and completely the global economy emerges from lockdown, and whether the recessionary hit lingers through the rest of this year and into 2021.

Earlier this year, BP said the deadly coronavirus outbreak could cut global oil demand growth by 40 per cent in 2020, putting pressure on Opec producers and Russia to curb supplies to keep prices in check.

We remind that, in September 2019, six world's major petrochemical companies in Flanders, Belgium, North Rhine-Westphalia, Germany, and the Netherlands (Trilateral Region) announced the creation of a consortium to jointly investigate how naphtha or gas steam crackers could be operated using renewable electricity instead of fossil fuels. The Cracker of the Future consortium, which includes BASF, Borealis, BP, LyondellBasell, SABIC and Total, aims to produce base chemicals while also significantly reducing carbon emissions. The companies agreed to invest in R&D and knowledge sharing as they assess the possibility of transitioning their base chemical production to renewable electricity.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 557,060 tonnes in the first three month of 2020, up by 7% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments rose because of the increased capacity utilisation at ZapSibNeftekhim. Demand for LDPE subsided. At the same time, PP shipments to the Russian market was 267,630 tonnes in January-March 2020, down 20% year on year. Homopolymer PP and PP block copolymers accounted for the main decrease in imports.
MRC

MOSCOW (MRC) -- MEGlobal announced that its Asian Contract Price (ACP) for monoethylene glycol (MEG) will be USD570/MT CFR Asian main ports for arrival June 2020, said the company.

The June 2020 ACP reflects the short term supply/demand situation in the Asian market.

As MRC informed earlier, MEGlobal announced that its Asian Contract Price (ACP) for monoethylene glycol (MEG) will be USD560/MT CFR Asian main ports for arrival May 2020. The May 2020 ACP reflects the short term supply/demand situation in the Asian market.

MEG is one of the main feedstocks for the production of polyethylene terephthalate (PET).

As per MRC's ScanPlast report, Russia's estimated PET consumption decreased to about 53,890 tonnes in February 2020, down by 3% year on year. 100,830 tonnes of PET chips were processed in Russia in the first two months of 2020. February PET production in Russia dropped to 45,800 tonnes, down by 5% year on year. Russia's overall PET production fell in January-February 2020 by 13% year on year.

Headquartered in Dubai (UAE), MEGlobal is the world leader in the production of monoethylene glycol (MEG) and diethylene glycol (DG). Established in July 2004, MEGlobal currently sells more than 2.5 million tons of DG per year worldwide. MEGlobal is a 100% subsidiary of Equate Petrochemical Company. In December 2015, Dow Chemical closed a deal to sell its stake in MEGlobal to Equate Petrochemical Company as part of a strategy to optimize its equity stake in Kuwaiti joint ventures.

MRC