Brent oil market structure, physical rally could draw oil from storage

MOSCOW (MRC) -- The oil futures market is pricing in tighter supplies due to OPEC-led production cuts and recovering demand as lockdowns to contain the coronavirus outbreak are eased, suggesting a huge inventory buildup could slow and start to be drawn down, reported Reuters.

Brent crude futures for July are trading at the smallest discount to the contract six months in the future since March. A price structure where oil for immediate delivery is cheaper is called contango. A narrowing contango usually points to supplies becoming more constrained.

At the same time, the price of North Sea physical oil compared with dated Brent - the benchmark used to price most of the world’s cargoes - has recovered from historic discounts and is moving toward parity.

The changes arise against the backdrop of supply cuts led by the OPEC+ group of oil producers and reductions by other producers, such as the United States. Government lockdowns to limit the spread of the coronavirus have also begun to be eased, pointing to a recovery in fuel use.

"The supply and demand balance is tightening," said Olivier Jakob, analyst at Petromatrix. "The physical market is moving towards some rebalancing and away from the heavily over-supplied condition."

The record contango that arose due to the collapse in demand caused by the lockdowns had encouraged a vast buildup of oil in storage that had strained available storage capacity and led to a record amount held in ships at sea.

Now the incentive to keep adding to storage has weakened. Crude traders said demand for oil for immediate delivery had increased, as supply cuts had surprised on the upside.

"There is an improvement. People are getting back to work," a North Sea trade source said. "Hopefully we’ll see some crude that’s in storage being drawn on."

Another trade source said the narrowing contango was creating a temptation to offload some stored crude, or at least to swap the oil being held in tanks for another grade if it was in higher demand.

Still, the physical rally could have run too fast. Eugene Lindell, analyst at JBC Energy, said a drop in refinery profit margins could put a brake on the gains.

"The physical differentials are currently doing very well," said. The big fly in the ointment is that crude buying interest is ebbing given weak refinery margins on the back of elevated product stocks. Hence, we are cautious on the sustainability of this mini rally - at least in the short term."

As MRC informed 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

1. Solvay to close composite plants amid deepening aerospace crisis

MOSCOW (MRC) -- Solvay SA said it will close two plants making composites for Airbus SE and Boeing Co. in a sign the deepening aerospace crisis is hitting suppliers of even the latest aircraft materials, reported Bloomberg. The Belgian chemical maker is adding to savings achieved in the past year following the grounding of Boeing’s 737 Max. The latest measures from Solvay Chief Executive Officer Ilham Kadri will lead to about 570 job cuts, or 20% of the workforce in Solvay’s composites unit, the Brussels-based company said Friday. The closure of sites in Manchester, England, and Tulsa, Oklahoma, mark the latest example of a permanent downsizing now taking place across in the aircraft industry.

MRC

MOSCOW (MRC) -- Mitsubishi Chemical has undertaken a planned shutdown at its naphtha cracker in Japan, according to Apic-online.

A Polymerupdate source in Japan informed that, the company commenced turnaround at the cracker on May 9, 2020. The cracker is likely to remain under maintenance till end-June, 2020.

Located at Kashima, Japan, the cracker has an ethylene production capacity of 540,000 mt/year and a propylene capacity of 270,000 mt/year.

As MRC reported previously, the company last started a two-month maintenance at this cracker in H1 May, 2018.

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.

Mitsubishi Chemical with headquarters in Tokyo, Japan, is a diversified chemical company involved in petrochemicals, polymers, agrochemicals, speciality chemicals and pharmaceuticals. The company's main focus is on three business pillars: petrochemicals, performance and functional products, and health care.
MRC

MOSCOW (MRC) -- Sinopec SABIC Tianjin Petrochemical Co. (SSTPC), a 50-50 joint venture of Sinopec and SABIC, has shut its naphtha cracker in Tianjin on 1 May 2020 for routine maintenance work, reported CommoPlast.

The cracker is expected to remain off-line until early July 2020.

The naphtha cracker is designed to produce 1 million tons/year of ethylene, which supplies several local buyers in the Tianjin area.

Besides, the company is also planning to expand its cracker capacity to 1.3 million tons/year in 2021.

Thus, as MRC informed earlier, in October 2019, SSTPC began construction on an ethylene expansion project in Tianjin Province, China. The project will boost the company's ethylene capacity to 1.3-million t/y from 1-million t/y currently. Cost and a schedule for the project were not given.

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.

China Petrochemical Corporation (Sinopec Group) is a super-large petroleum and petrochemical enterprise group established in July 1998 on the basis of the former China Petrochemical Corporation. Sinopec Group"s key business activities include the exploration and production of oil and natural gas, petrochemicals and other chemical products, oil refining.

Saudi Basic Industries Corporation (Sabic) ranks among the world"s top petrochemical companies. The company is among the world"s market leaders in the production of polyethylene, polypropylene and other advanced thermoplastics, glycols, methanol and fertilizers.
MRC

MOSCOW (MRC) -- China National Offshore Oil Corp (CNOOC) will trim annual investment by 10% to 15% in 2020, while maintaining its goal of increasing domestic crude oil and natural gas production for the year, reported Reuters with reference to the company's statement.

CNOOC Ltd, a listed arm of the national offshore energy producer, said during a media briefing the firm will "significantly" cut capital expenditure.

Oil and gas companies worldwide are reducing spending this year following a collapse in oil prices and plummeting fuel demand amid the coronavirus outbreak.

CNOOC did not give any further details on its capital expenditure plan or on its oil and gas production targets for its domestic and overseas blocks.

It will cut total costs by a least 10% and reduce losses at its money-losing firms by 5 billion yuan (USD710 million) in 2020, the statement said.

The company did not give details on the unprofitable businesses. One of its big loss-makers, however, is its gas and power unit, and the company said in March it is set to have its Hong Kong-listed flagship take over that sector.

Capital expenditures at the Hong Kong-listed firm were 79.6 billion yuan in 2019.

The company said in January it would raise 2020 production to 525 million barrels of oil equivalent at both domestic and overseas projects from 506.5 million barrels in 2019. The focus would be on raising domestic output while cutting overseas operations, it said.

CNOOC’s businesses besides oil and gas production include oil refining, petrochemicals manufacturing, liquefied natural gas (LNG) terminals and renewable energy generation.

As MRC wrote before, in early May, 2018, China National Offshore Oil Corporation (CNOOC) and Shell Nanhai B.V. (Shell) announced the official start-up of the second ethylene cracker at their Nanhai petrochemicals complex in Huizhou, Guangdong Province, China.

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.

China National Offshore Oil Corporation (CNOOC), the largest offshore oil & gas producer in China. CNOOC businesses cover the main segments of oil & gas exploration and development, engineering & technical services, refining and marketing, natural gas and power generation, and financial services.
MRC