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Successful OPEC output deal fits a pattern

May 21/2020

MOSCOW (MRC) -- Saudi Arabia and its allies in the expanded OPEC+ group of oil-exporting nations have successfully engineered a prospective deficit in the oil market, boosting spot prices and calendar spreads over the last four weeks, said Reuters.

Front-month Brent futures prices have risen by more than USD15 per barrel (80%) since the second trimester of April, while the six-month calendar spread has tightened from more than USD12 contango to less than USD3.

The unprecedented scale of the production cuts announced by Saudi Arabia and its allies last month, and signs of strong compliance from many countries, including Russia, have attracted a lot of comment.

But experience suggests Saudi Arabia and its allies in OPEC and OPEC+ have always been able to force the market into deficit, boosting prices and spreads, when they wanted to do so, so it should not have come as a surprise.

The producer group, with a rotating cast of members, but always led by Saudi Arabia, successfully engineered deficits in 1998/99, 2001/02, 2006/07, 2008/09, 2016/17 and 2019/2020.

The recent production-cutting agreement, announced on April 9, and the subsequent response of spot prices and spreads, have fitted the pattern perfectly (

Most commentary focuses on the top-level diplomacy and personalities involved in production-cutting agreements.

But a more structural approach that focuses on the financial costs and incentives that lie behind each deal shows a recurring pattern.

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.
Author:Anna Larionova
Tags:petroleum products, crude oil, PP, PE.
Category:General News
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