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Crude rises on expectation of tamer US lockdowns, Asian trade agreement

November 19/2020

MOSCOW (MRC) -- Crude prices rose in mid-morning trade in Asia Nov. 16, as the market was comforted by the strong possibility that any new lockdowns in the US will be less severe than the nationwide lockdowns seen in spring, with the signing of the Regional Comprehensive Economic Partnership (RCEP) also providing a boost to sentiment, reported S&P Global.

At 10:37 am Singapore time (0237 GMT), ICE Brent January crude futures were up 41 cents/b (0.96%) from the Nov. 13 settle at USD43.19/b, while the NYMEX December light sweet crude contract was up 50 cents/b (1.25%) at USD40.63/b.

January ICE Brent and December NYMEX crude futures surged 8.44% and 8.05% higher in the week ended Nov. 13 to settle at USD42.78/b and USD40.13/b, respectively, on reports of progress in the development of a COVID-19 vaccine.

Market analysts attributed the upward trajectory in oil prices this morning to rising hopes that if any lockdown measures are implemented in the US, they will not be as strict as the ones seen during the first wave of the virus in spring.

"Oil is trading higher at the open after Dr. Vivek Murthy, a former US surgeon general [who is also one of Joe Biden's top advisers on the virus], told "Fox News Sunday" that any lockdown at this stage of the pandemic would look different than the sweeping closures which states enacted in the spring to suppress the virus," said Stephen Innes, chief global market strategist at axi, in a Nov. 16 note.

"Last week, traders speculated that the US could move into very rigid lockdowns over the holiday season, impacting road fuel demand over Thanksgiving and Christmas, so we are seeing some of those shorts give way at the open," Innes added.

Margaret Yang, strategist at DailyFX, echoed the above sentiment, and told S&P Global Platts that "Biden's advisory suggesting that [they are] reluctant to implement harsh nationwide lockdowns is good news for energy demand in North America. This is one of the major headlines driving prices higher this morning."

Yang added that the signing of the RCEP - the world's biggest trade agreement involving 15 nations and covering almost a third of the world economy - and the weakening US dollar also contributed to the bullishness seen in the market this morning.

"The sentiment in Asian markets is positive this morning, and this is also because of the signing of the RCEP trade agreement on Nov. 15, which is expected to provide a long-term boost in the region's economic activity," Yang said. "Last but not least, the falling US dollar this morning may have provided some additional support to oil prices."

However, despite the uptrend in prices this morning, and even without strict US lockdowns, both Innes and Yang surmised that the oil complex will likely remain pressured in the near-term by coronavirus-induced demand concerns, especially since COVID-19 cases in both Japan and the US have been rising unabated, and since most of Europe remains under some degree of lockdown.

ANZ analysts said in a Nov. 16 note: "European motorway traffic is down almost 50% in recent weeks in some countries (such as France) as lockdown measures are increased. (Even though US authorities have been reluctant to implement lockdowns,) people movement is slowing, with vehicle miles traveled on US highways falling 3% w/w in the week ending Nov. 8."

"Fundamentals are still bleak and are unlikely to support oil prices, which I believe will consolidate at around USD40-USD42/b in the near term," Yang concluded.

As MRC informed previously, global oil demand may have already peaked, according to BP's latest long-term energy outlook, as the COVID-19 pandemic kicks the world economy onto a weaker growth trajectory and accelerates the shift to cleaner fuels.

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.

And 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).

ccording to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,594,510 tonnes in the first nine months of 2020, up by 1% year on year. Only high denstiy polyethylene (HDPE) shipments increased. At the same time, PP shipments to the Russian market reached 880,130 tonnes in the nine months of 2020 (calculated using the formula: production minus exports plus imports, exluding producers' inventories as of 1 January, 2020). Supply increased exclusively of PP random copolymer.
Author:Margaret Volkova
Tags:Asia, Europe, PP, PE, crude and gaz condensate, PP random copolymer, propylene, HDPE, ethylene, petrochemistry, BASF, Borealis, BP Plc, LyondellBasell, Sabic, Total Petrochemicals, Russia, USA.
Category:General News
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