Oil falls below USD41 as U.S. inventory rise revives glut worries

MOSCOW (MRC) -- Oil fell more than 1% to below USD41 a barrel after a report showed a rise in crude inventories in the United States, reviving concerns about oversupply and weak demand because of the coronavirus crisis, said Hydrocarbonprocessing.

The report from the American Petroleum Institute, an industry group, said crude stocks rose by 8.4 million barrels, rather than falling as analysts forecast. The U.S. government’s official stocks figures are due out later on Wednesday.

"Indications from the American Petroleum Institute show that stocks built quite a lot,” said Bjornar Tonhaugen of Rystad Energy. “What else can you do as a trader but rush to sell?" Brent crude LCOc1 was down 50 cents, or 1.2%, to USD40.68 a barrel at 1325 GMT. U.S. West Texas Intermediate (WTI) CLc1 also dropped 50 cents, or 1.3%, to USD38.44.

Both benchmarks had hit three-month highs on Monday. Brent has more than doubled since falling to a 21-year low below USD16 in April. But some analysts think the market has risen too far as the coronavirus pandemic continues.

“With equity markets edging lower, and a vast amount of good news baked into oil prices at these levels, it was no surprise that the oil market’s confidence wavered slightly,” said Jeffrey Halley, senior market analyst at OANDA. Official government figures on U.S. stockpiles from the Energy Information Administration are due later on Wednesday.

Prices have been supported by a record oil supply cut of 9.7 million barrels per day (bpd), about 10% of pre-coronavirus daily demand, by the Organization of the Petroleum Exporting Countries (OPEC), Russia and others, a group known as OPEC+.

An easing of government lockdowns that sought to limit the spread of the virus has revived demand by boosting travel and economic activity, also supporting the market. OPEC+ agreed on Saturday to extend the record cut for another month until the end of July.

While this helped prices, the market came under pressure after Saudi Arabia, Kuwait and the United Arab Emirates decided not to extend their extra voluntary supply reductions.

On June 6, the 23 members of the OPEC+ alliance renewed their April agreement to reduce production by 9.6 million b/d through July. Under the plan, Saudi Arabia is cutting its monthly output by at least 8.5 million b/d, which is down almost 30% from the 12 million b/d it said it was producing in April. The kingdom had previously agreed to institute an additional 1 million b/d in cuts for June but has indicated it would not be willing to continue those curbs in July.

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.
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BASF to cease production at Pennsylvania petrochemical catalysts facility

MOSCOW (MRC) -- BASF announced that it will close its manufacturing facility in Erie in 2021, said Yourerie.

BASF produces process catalysts used primarily in the petrochemical industry. According to BASF, most production operations will cease by the end of 2020. The facility will continue to fulfill confirmed customer requests through the first quarter of 2021 and final decommissioning and demolition work are anticipated through mid-2022.

"This is a difficult situation and we are grateful for the BASF Erie site team’s dedication over the years and during the transition,” said Travis Rollins, Site Manager for BASF’s Erie facility. “Our priorities continue to be the well-being of our employees and maintaining safe operations during the closure process."

75 positions will be phased out starting with the ceasing of operations in December and continuing through the decommissioning process. BASF says they will provide severance and outplacement services to employees, including support for employment at other BASF facilities.

We remind that BASF has restarted its No. 1 steam cracker following a maintenance turnaorund. Thus, the company resumed operations at the plant on September 30, 2019. 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.

BASF is the leading chemical company. It produces a wide range of chemicals, for example solvents, amines, resins, glues, electronic-grade chemicals, industrial gases, basic petrochemicals and inorganic chemicals. The most important customers for this segment are the pharmaceutical, construction, textile and automotive industries. BASF generated sales of EUR59 billion in 2019.
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Braskem signs five-year naphtha supply deal with Petrobras

MOSCOW (MRC) -- Braskem announced today that it has signed agreements with Petrobras for the supply of naphtha feedstock to Braskem's units in Bahia and Rio Grande do Sul, said Chemweek.

The deal, which covers five years after the expiry date of the current agreement at the end of this year, provides for the supply of a minimum volume of 650,000 metric tons/year, at an option for Petrobras to supply an additional volume of up to 2.8 million metric tons/year, at a price equivalent to international ARA reference price.

In addition, to guarantee access to the naphtha logistics system in Rio Grande do Sul, Braskem has renewed the storage agreement with Petrobras and the transport and storage agreement with Petrobras Transporte S.A.

At a results conference call with analysts earlier this month, Braskem’s CFO Pedro Freitas, said that Braskem is facing some uncertainty as Petrobras is in the process of divesting refineries as part of a major restructuring program. “We anticipate that there will be different owners in the two refineries that are closer to our plants in the south and in the north of Brazil.” The new naphtha contract will be split “so that we have a contract in the south and another in the north, so that whenever Petrobras sells the refineries, we already have that contract structure arranged for the new configuration in the future,” Freitas said.

As MRC informed earlier, Braskem's 450,000 mt/year polypropylene (PP) plant under construction along the Houston Ship Channel is nearly complete. The company said construction was 98.4% complete by the end of the first quarter of 2020, with USD634 million spent. Braskem's US arm, Braskem America, imported 8,000 mt of PP from the parent company's Brazilian operations in Q1 to continue the new facility's pre-marketing activities.

According to MRC's ScanPlast report, PP shipments to the Russian market totalled 347,440 tonnes in January-April 2020 (calculated by the formula production minus export plus import). Supply exclusively of PP random copolymer increased.

Headquartered in Rio de Janeiro, Petrobras is an integrated energy firm. Petrobras' activities include exploration, exploitation and production of oil from reservoir wells, shale and other rocks as well as refining, processing, trade and transport of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.
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COVID-19 - News digest as of 10.06.2020

1. BP to slash operating costs by USD2.5 billion, cut almost 10,000 jobs

MOSCOW (MRC) -- BP says it will reduce its operating costs by USD2.5 billion in 2021 and cut close to 10,000 jobs, mostly before the end of this year, due to the collapse in oil demand because of COVID-19 and as part of its strategy to become a lower-carbon company, said Chemweek. The UK major in early April announced a cut of around 25%, approximately USD2.5 billion, in its planned capital expenditure (capex) to USD12.0 billion for 2020. BP’s CEO Bernard Looney now says those capex cuts will total around USD3.0 billion. It will also now reduce its operating costs, currently USD22 billion, by USD2.5 billion. The company has not specified any specific business divisions that will be affected. “It was always part of the plan to make BP a leaner, faster-moving and lower-carbon company. That is how we will deliver on our net zero ambition. And that is how we will seize opportunities throughout the energy transition. Then the COVID-19 pandemic took hold,” he says. Flagging the widespread economic fallout of the pandemic, Looney says the oil price has plunged “well below the level we need to turn a profit. We are spending much, much more than we make – I am talking millions of dollars, every day.” The company’s net debt rose by USD6 billion in the first quarter of this year as a result, he says, adding, “We have to spend less money.”

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Pemex studies reconfiguration of petchems facility at Cangrejera, Mexico, into refinery

MOSCOW (MRC) -- Petroleos Mexicanos (Pemex; Mexico City) is advancing a refinery rehabilitation program that will enable it to process 1.2 million b/d of crude oil by the end of 2020 and evaluating a reconfiguration of its petrochemical facility at Cangrejera, Mexico, into what would be its eighth refinery, said Chemweek.

The state-owned company will conclude viability studies in the coming weeks for the building of a 200,000-b/d crude processing train at Cangrejera, Pemex CEO Octavio Romero Oropeza said during a webcast at the weekend. Pemex is close to defining construction times, costs, and profitability, as well the availability of light crude oil over the lifetime of the project, Romero said.

Reconfiguring Cangrejera is an idea that has been explored for decades, with the potential project discarded by Pemex in 2008 and brought out again by trading group Vitol in 2016 under a joint venture. Vitol proposed the project, but Pemex wasn't interested at the time, according to local media.

Cangrejera currently has a 12,000-b/d crude processing unit to produce naphtha as a petrochemical feedstock and other components, for the production of gasoline at Pemex’s 285,000-b/d Minatitlan refinery, said Romero. Pemex currently imports 25,000 b/d of naphtha to operate Cangrejera, he added.

Mexican president Andres Manuel Lopez Obrador said that the reconfiguration was an attractive brownfield project, with multiple advantages such as a low environmental impact and the ability to use existing infrastructure. If the decision is taken to reconfigure Cangrejera, Pemex must complete the work no later than 2023, the year the current presidential term ends, Lopez Obrador said. This would ensure the project is completed and not abandoned by future administrations, he added.

Crude oil availability will be a challenge for this project amid the reluctance from Mexico to import light crude oil. The government expects to refine 1.6 million b/d of crude oil by 2022. Pemex has a goal of producing 2.4 million b/d of crude oil by 2024. However, IHS Markit forecasts Mexico’s crude output will be 1.5 million b/d by that year.

Mexico’s energy secretary, Rocio Nahle, said that Mexico expects to process 1.2 million b/d of crude oil by the end of 2020, a level last reached during a handful of months in 2014, according to Pemex data. The country is moving to boost its crude processing levels despite having negative refining margins in the last two quarters: minus USD2.64/bbl in the fourth quarter of 2019 and minus USD12.51/bbl during the first quarter of 2020.

Pemex CEO Romero said works are also moving ahead for the rehabilitation of the Minatitlan refinery, which will allow the facility to reach a reliable processing level of 170,000 b/d by the end of the year, a significant recovery from 26,000 b/d processed in 2018 and 96,000 b/d in 2019. Minatitlan only operated for five months in 2018 and four months in 2018.

Pemex currently has two ethane-based steam crackers, at Cangrejera and Morelos. Mexico has been a net importer of ethane since 2018, with its domestic ethane production for 2020 put at around 77,000 b/d, according to a recent IHS Markit North American Light Olefins monthly report. A total of approximately 67,000 b/d is required to feed its own two crackers, while Pemex must also fulfil its long-term contract requirements to Braskem-Idesa of 66,000 b/d.

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.


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