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Oil slides 4% as COVID resurgence, Libyan production restart rattle fundamentals

September 24/2020

MOSCOW (MRC) -- Oil prices settled sharply lower Sept. 21 as the market eyed rising Libyan production and the prospect of more demand-destroying lockdowns on the horizon in Europe, reported S&P Global.

NYMEX October WTI settled USD1.80/b lower at USD39.31/b and ICE November Brent finished trading down USD1.71 at USD41.44/b.

A resurgence of COVID-19 coronavirus cases in Europe raised the specter of a return to lockdowns, sending US equity prices sharply lower and adding additional weight to an energy complex already under pressure from the prospect of rising supply.

UK leaders are considering instituting new lockdown measures in the face of a steep rise in the number of new coronavirus infections, according to media reports. The move could herald a return to global lockdowns as the risks of a so-called second wave of infection increases with the onset of cooler weather in the northern hemisphere.

With global refined product appetite still on the back foot from the spring lockdowns, further restrictions on travel and trade are likely to weigh heavily on crude and product demand. US refined product demand was 15% below normal as of the week ended Sept. 11, according to US Energy Information Administration data.

NYMEX October RBOB settled down 5.95 cents at USD1.1771/gal and October ULSD was 5.17 cents lower on the day USD1.1073/gal.

Futures were already lower overnight after Libya's state-owned National Oil Corp. said Sept. 19 it had lifted force majeure on oil fields and ports, excluding facilities where militants are still present, a day after the Libyan National Army announced an end to an eight-month oil blockade.

Regional price differentials were little moved by the news. Platts Es Sider FOB Libya was assessed at a USD1.40/b discount to the Med Dtd strip, in from USD1.45/ on Sept, while the Platts Azeri Light CIF Augusta premium to the BTC Dtd strip edged down to 90 cents/b from 95 cents/b the session prior.

Analysts were mixed on the impact of the lifting of the Libya blockade, which could send up to 1.1 million b/d of crude to the market and potentially complicate the OPEC+ coalition's attempt at balancing an oil market still awash with oil.

"OPEC+ tentatively provided some relief that the oil market was heading toward balance, but rising output from Libya puts that at risk," OANDA senior market analyst Edward Moya said in a note.

But Goldman Sachs analysts, citing "significant uncertainty on the timing, magnitude and sustainability" of a restart, forecast Libya production to rise by just 400,000 b/d by December, and noted that any upside risk to the forecast is offset by downside supply risks from better OPEC+ compliance.

Meanwhile, offshore US Gulf of Mexico oil and gas production continued to recover Sept. 21 as Tropical Storm Beta was preparing to make landfall along the Texas coast, US Bureau of Safety and Environmental Enforcement data showed.

Less than 10% of the Gulf's oil and gas volumes remained offline on Sept. 21 from the effects of Hurricane Sally last week, with much of the production still offline coming from Shell's Perdido platform in the western Gulf that was shut in ahead of Beta.

As MRC wrote previously, Royal Dutch Shell Plc returned its 227,400 barrel-per-day (bpd) oil refinery at Norco, Louisiana, to normal operations on Monday. Shell returned the 240,000-bpd crude distillation unit (CDU) and 14,800-bpd alkylation unit to production as well as restarting the 40,000-bpd reformer.

We remind that in May 2020, CNOOC Oil & Petrochemicals Co. Ltd (CNOOC), Shell Nanhai B.V (Shell) and the Huizhou Government have announced a strategic cooperation agreement to further expand the CNOOC and Shell Petrochemical Company (CSPC) 50:50 joint venture in Huizhou, Guangdong Province, China. The expansion is planned to serve the growing number of intermediate and performance chemicals customers in the key market of China, supplying products including SMPO, polyols, ethylene glycol, polyethylene (PE) and polypropylene (PP). These chemicals are used in a wide range of end products, in healthcare, construction, fabrics, packaging, transport and electronics. For the first time in Asia, Shell would apply its advanced technology for linear alpha olefins. The project is intended to include construction of a new 1.5 million-tonnes-per-year ethylene cracker, with the mega-site bringing economies of scale and enhanced competitiveness.

Ethylene and propylene are feedstocks for the production of PE and PP.

According to MRC's ScanPlast report, Russia's overall PE production totalled 1,712,400 tonnes in the first seven months of 2020, up by 58% year on year. Linear low density polyethylene (LLDPE) accounted for the greatest increase in the output. At the same time, overall PP production in Russia increased in January-July 2020 by 24% year on year to 1,063,700 tonne. ZapSibNeftekhim accounted for the main increase in the output.
Author:Margaret Volkova
Tags:PP, PE, LLDPE, crude and gaz condensate, propylene, ethylene, petrochemistry, China, Russia, USA.
Category:General News
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