Global oil refining could rebound in June, but margins weak

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

First U.S. crude oil shipment heads to Belarus this week

MOSCOW (MRC) -- The first shipment of U.S. crude oil is heading to Belarus this week, fulfilling a commitment made in February, U.S. Secretary of State Mike Pompeo said, said Reuters.

The shipment involves by U.S. firm United Energy Trading, with the assistance of U.S. firm Getka and Polish partner UNIMOT. “This competitive deal ... strengthens Belarusian sovereignty and independence, demonstrates that the United States is ready to deliver trade opportunities for American companies interested in entering the Belarusian market,” Pompeo said.

Belarus, a close ally of Russia, became involved in a row with Moscow earlier this year over the price it pays for Russian oil. The dispute has since been concluded, but Belarus has said it wants to diversify its oil imports. In late April, Belarus, which has long relied on Russian oil, purchased its first crude from Saudi Arabia, according to state refiner Belneftekhim.

“The United States urges Belarus to build on the progress it has made to increase the access of American businesses to its market and undertake the market-oriented, trade-liberalizing reforms necessary to advance its WTO (World Trade Organization) accession process,” Pompeo said in a statement.

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

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.

Before the coronavirus crisis, composites had been a bright spot. With each new jet, Airbus and Boeing strove to replace metal parts with advanced materials to save on weight and boost fuel efficiency. Now, both major planemakers are preparing to slash jobs, with the impact being felt by their suppliers.

Solvay said it will book a 30 million-euro (USD32 million) charge to cover expenses related to the restructuring plan. The savings generated are expected to be double that amount by the year-end.

"The steps we are taking are necessary to adapt to the dynamic environment," said the CEO, a former Dow Chemical Co. executive.

As MRC reported earlier, in response to urgent needs by medical professionals for protective equipment to combat COVID-19, Solvay is supplying high-performance, medical-grade transparent film to Boeing for its production of face shields. Boeing approached Solvay due to its experience in the use of advanced composite and adhesive materials on multiple commercial and defense programs.

We remind that earlier this year, DOMO Chemicals completed its acquisition of Solvay’s Performance Polyamides Business in Europe. This Business includes Engineering Plastics operations in France and Poland; High Performance Fibers in France; Polymer and Intermediates operations in France, Spain and Poland. The Business comprises Production, Sales, Technical Support, R&D and Innovation services in France, Spain, Poland, Germany and Italy that currently have a combined headcount of approximately 1,100 employees. The agreement also involves a joint venture between BASF and DOMO in France for the production of Adipic Acid.

And on January 31, 2020, BASF, the world's petrochemical major, closed the acquisition of Solvay's polyamide (PA 6.6) business. The transaction broadens BASF's polyamide capabilities with innovative and well-known products such as Technyl. This will allow BASF to support its customers with even better engineering plastics solutions, e.g., for autonomous driving and e-mobility. The transaction also enhances the company's access to growth markets in Asia as well as in North and South America.

We also remind that BASF restarted its No. 1 steam cracker on September 30, 2019, following a maintenance turnaorund. The plant was shut for maintenance in mid-August, 2019. Located at Ludwigshafen in Germany, the No. 1 cracker has an ethylene production capacity of 235,000 mt/year and a propylene production capacity of 125,000 mt/year.

Ethylene and propylene are feedstocks for producing 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

US lawmakers include biofuels aid in latest proposed relief bill

MOSCOW (MRC) -- US lawmakers introduced a relief bill that would include aid to biofuel producers after demand for the fuel plummeted because of the coronavirus pandemic, causing mass shutdowns in the industry, reported Reuters.

The bill, introduced by House Democrats, would reimburse producers that suffered unexpected market losses because of the pandemic from January 1 through May 1. It is not clear whether the bill as proposed will be passed into law.

Eligible producers would receive 45 cents a gallon for fuel produced during the January-May period, according to the bill. If a facility was unable to make fuel during one or more months during the period, the producer would receive 45 cents multiplied by 50% of the number of gallons produced from year-ago levels.

The proposed assistance to the biofuels industry follows pleas by trade associations and lawmakers. As governments ordered residents to stay at home to curb the virus’ spread, demand for gasoline fell, dragging biofuels along with it.

US laws require that refiners blend biofuels into the nation’s fuel pool or buy credits from those that do.

Around half of the industry’s capacity is offline, and about 150 ethanol facilities have idled or cut rates, according to the Renewable Fuels Association.

"The Renewable Fuel Reimbursement Program represents a potential lifeline for the 350,000 men and women whose jobs depend on a healthy and vibrant ethanol industry," said RFA President Geoff Cooper.

As MRC wrote 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

Saudi Aramco cuts crude allocation to some Asian buyers

MOSCOW (MRC) -- Saudi Aramco, the world’s largest oil exporter, has cut the volume of crude it will supply to at least three buyers in Asia by 10%-30% for June, sources said, said Hydrocarbonprocessing.

The cuts were made against volumes that the buyers had nominated for June-loading supplies, the refining sources told Reuters. Saudi Aramco declined to comment.

The move came after Saudi Arabia announced it would voluntarily deepen oil output cuts by additional 1 million barrels per day (bpd) from June to an output level of 7.492 million bpd, the lowest in almost two decades.

The announcement followed a deal struck by the Organization of the Petroleum Exporting Countries (OPEC) and its allies including Russia to cut output by an unprecedented 9.7 million bpd in May and June to reduce excess supply and support prices.

Market sentiment regarding the tightening of Aramco’s crude supplies propped up Asia’s spot market for Middle East sour crude on Thursday as some sellers doubled or even quadrupled their offers from the last trade levels. Several buyers were looking for Middle East crude cargoes, but sellers were either holding out or offering their cargoes at high premiums, trade sources said.

Last month, the market had been flooded with cheap oil in deep discounts. “Market sentiment is different now,” said one of the refinery sources.

On Thursday, Exxon Mobil Corp hiked its offer price for Abu Dhabi’s medium sour grade Upper Zakum crude, for July loading, to a spot premium USD1.40 a barrel to the grade’s official selling price (OSP), traders said. This was up from a premium of 30 cents a barrel to the OSP when Exxon sold a cargo to a Chinese buyer on Tuesday, they added.

The oil major does not typically comment on commercial matters. There is a sense of “panic buying” among some refiners amid the supply tightness, said a fourth refinery source. But no trades have been done at high price levels, as refiners held back amid poor refining margins, the sources said.

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