MOSCOW (MRC) -- Global oil refining production could start rebounding in June, the International Energy Agency said, but refiners’ margins may be squeezed due to rising crude prices as producers slashed output much faster than expected, said Hydrocarbonprocessing.
Refiners throttled back output globally as the coronavirus pandemic sent billions of people into lockdown and cut fuel demand by 30%. Crude prices crashed, prompting the Organization of the Petroleum Exporting Countries and allies, known as OPEC+, agreed to cut oil output by 9.7 million barrels per day (bpd), while other nations have also reduced output.
“If crude supply adjusts more quickly to the oversupply than forecast, this will support crude prices and depress refinery margins, resulting in lower refining throughput than anticipated,” the IEA said in its monthly oil market report. In recent days, several OPEC nations including Saudi Arabia said they will cut output more than originally pledged. Producers in the United States and Canada have cut production by 1.7 million bpd, much faster than expected.
The tight supply has hit refining margins in the United States and Europe. U.S. diesel margins HOc1-CLc1 are currently less than $11 a barrel, lowest seasonally over the last decade, while European diesel margins LGOc1-LCOc1 are below USD5 a barrel, lowest since mid-2009.
In Asia, gasoil margins, which are derived from Dubai crude prices, have slumped by around 60% in the past month to under USD4 per barrel. The margins for the benchmark 10ppm gasoil grade in Singapore are currently at their lowest seasonal levels on record, Refinitiv Eikon data showed. While the easing of some lockdown restrictions should boost fuel demand, refiners still face big headwinds and more are shutting down until margins improve.
Oil demand in April slumped by around 25%, or more than 25 million bpd, IEA monthly figures showed, in reaction to global lockdowns. In the United States, refining capacity use fell to 68% in the most recent week, just off an all-time low, the U.S. Energy Information Administration said.
But producer cuts have been swifter. Saudi Arabia said it will reduce output by nearly 5 million bpd in June, or 1 million bpd more than expected. Kuwait and United Arab Emirates also said they would clip production, boosting crude prices.
Ethylene and propylene are feedstocks for producing PE and 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.
MRC