A historic oil price collapse, with worries headed into 2021

MOSCOW (MRC) -- Even as global prices end the year at about USD51 a barrel, near the average for 2015-2017, it masks a year of volatility, said Reuters.

In April, U.S. crude plunged deep into negative territory and Brent dropped below USD20 per barrel, slammed by the COVID-19 pandemic and a price war between oil giants Saudi Arabia and Russia. The remainder of 2020 was spent recovering from that drop as the pandemic destroyed fuel demand around the world. While the short-lived decline of U.S. oil futures below negative-USD40 a barrel is not likely to be repeated in 2021, new lockdowns and a phased rollout of vaccines to treat the virus will restrain demand next year, and perhaps beyond.

"We really haven't seen anything like this - not in the financial crisis, not after 9/11," said Peter McNally, global sector lead for industrials, materials and energy at research firm Third Bridge. "The impact on demand was remarkable and swift."

Fossil-fuel demand in coming years could remain softer even after the pandemic as countries seek to limit emissions to slow climate change. Major oil companies, such as BP Plc and Total SE, published forecasts that include scenarios where global oil demand may have peaked in 2019.

World oil and liquid fuels production fell in 2020 to 94.25 million barrels per day (bpd) from 100.61 million bpd in 2019, and output is expected to recover only to 97.42 million bpd next year, the Energy Information Administration said.

"Every cycle feels like the worst when you're going through it, but this one has been a doozy," said John Roby, chief executive of Dallas, Texas-based oil producer Teal Natural Resources LLC.

As MRC informed earlier, Asian refining margins for jet fuel inched higher on Monday, but reimposed travel restrictions in several countries to slow the spread of a highly-infectious coronavirus variant is expected to dent passenger demand recovery. Refining margins, also known as cracks, for jet fuel ticked up USD0.05 to USD4.76/bbl over Dubai crude during Asian trading hours. The cracks, however, have shed 11% since hitting a more than nine-month high of USD5.35/bbl on Dec. 18.

We remind that PetroChina has nearly doubled the amount of Russian crude being processed at its refinery in Dalian, the company's biggest, since January 2018, as a new supply agreement had come into effect. The Dalian Petrochemical Corp, located in the northeast port city of Dalian, was expected to process 13 million tonnes, or 260,000 bpd of Russian pipeline crude in 2018, up by about 85 to 90 percent from the previous year's level. Dalian has the capacity to process about 410,000 bpd of crude. The increase follows an agreement worked out between the Russian and Chinese governments under which Russia's top oil producer Rosneft was to supply 30 million tonnes of ESPO Blend crude to PetroChina in 2018, or about 600,000 bpd. That would have represented an increase of 50 percent over 2017 volumes.

Ethylene and propylene are feedstocks for producing PE and polypropylene (PP).

According to MRC's DataScope report, PE imports to Russia decreased in January-November 2020 by 17% year on year and reached 569,900 tonnes. High density polyethylene (HDPE) accounted for the greatest reduction in imports. At the same time, PP imports into Russia increased by 21% year on year to about 202,000 tonnes in the first eleven months of 2020. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.
MRC

MOSCOW (MRC) -- ACC’s chemical activity barometer (CAB), a composite of industry activity and leading economic indicator, increased 1.1% on a sequential three-month moving average (3MMA) basis in December, according to Chemweek.

The index fell 1.1% year-on-year (YOY) in December.

The CAB index points toward continued economic recovery. “With eight consecutive months of gains, the December CAB reading is consistent with recovery in the US economy,” says Kevin Swift, chief economist at ACC.

Most indicators were positive in December, including production-related indicators, plastic resins and packaging, resins and chemistry for durable goods, and product and input prices. A partial exception was in construction-related resins and pigments, which saw mixed performance despite strong activity in housing.

As MRC reported previously, US chemical volumes are expected to drop nearly 10% this year as global economic activity contracts due to the impacts of COVID-19, according to the American Chemistry Council's (ACC) Mid-Year 2020 Chemical Industry Situation and Outlook. Volumes should recover in 2021 with a return to pre-COVID-19 output levels in the US by the second half of 2021.

We remind that Russia's output of chemical products rose in November 2020 by 9.5% year on year. At the same time, production of basic chemicals increased in the first eleven months of 2020 by 6.6% year on year, according to Rosstat's data. According to the Federal State Statistics Service of the Russian Federation, polymers in primary form accounted for the greatest increase in the January-November 2020 output. Last month"s production of polymers in primary form rose to 896,000 tonnes from 852,000 tonnes in October. Overall output of polymers in primary form totalled 9,240,000 tonnes over the stated period, up by 17.1% year on year.
MRC

MOSCOW (MRC) -- The U.S. Environmental Protection Agency was set to miss a deadline on Monday to announce how much renewable fuel the nation’s refiners must blend into their fuel mix next year, raising uncertainty in the fuel market and prompting one biofuel association to threaten to take the agency to court, said Hydrocarbonprocessing.

Under federal law, the EPA must finalize its decision on the annual biofuel blending volume requirements it imposes on the refining industry for the next year by Nov. 30. The agency did not respond to requests for comment.

“At this point, it likely makes more sense to let the new administration handle the 2021 RVO (Renewable Volume Obligations) rulemaking process entirely,” said Geoff Cooper, the president of the Renewable Fuels Association, one of the nation’s biggest biofuel industry groups. Growth Energy, another U.S. biofuel industry association, said it intends to file a lawsuit to force the Trump administration’s EPA to act “immediately."

The American Fuel and Petrochemical Manufacturers, a top refinery industry association, said it hoped the EPA will “soon provide certainty” to its members. Under the U.S. Renewable Fuel Standard, refiners must blend billions of gallons of ethanol and other biofuels into their fuel pool, or buy credits from those that do - a policy that has created a huge market for corn-based ethanol but which the oil industry loathes.

While the Trump administration has mainly hit its deadlines for setting specific biofuel volumes mandates under the RFS, the process this year has been complicated by the economic fallout of the coronavirus pandemic. Slumping fuel consumption has led refiners to argue for lower volume mandates to match demand, and biofuels producers to argue that doing so would only hurt them more.

The EPA has also left undressed a number of other questions that will likely need to be dealt with by the incoming Biden administration, including requests from oil industry advocates for the EPA to ease 2020 compliance because of the impact of the pandemic, and requests from the biofuel industry for the agency to ditch a waiver program it argued has illegally eroded demand for ethanol.

We remind that PetroChina has nearly doubled the amount of Russian crude being processed at its refinery in Dalian, the company's biggest, since January 2018, as a new supply agreement had come into effect. The Dalian Petrochemical Corp, located in the northeast port city of Dalian, was expected to process 13 million tonnes, or 260,000 bpd of Russian pipeline crude in 2018, up by about 85 to 90 percent from the previous year's level. Dalian has the capacity to process about 410,000 bpd of crude. The increase follows an agreement worked out between the Russian and Chinese governments under which Russia's top oil producer Rosneft was to supply 30 million tonnes of ESPO Blend crude to PetroChina in 2018, or about 600,000 bpd. That would have represented an increase of 50 percent over 2017 volumes.

Ethylene and propylene are feedstocks for producing PE and polypropylene (PP).

According to MRC's DataScope report, PE imports to Russia decreased in January-November 2020 by 17% year on year and reached 569,900 tonnes. High density polyethylene (HDPE) accounted for the greatest reduction in imports. At the same time, PP imports into Russia increased by 21% year on year to about 202,000 tonnes in the first eleven months of 2020. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.
MRC

MOSCOW (MRC) -- Saudi-based Advanced Petrochemical Company, a key manufacturer of polypropylene products, said its subsidiary, Advanced Global Investment Company (AGIC), has signed off-take agreements for the sale of polypropylene with two US-based groups - Vinmar International and Tricon Dry Chemicals - and Mitsubishi Corporation of Japan, said Chemweek.

As per the long-term deal, AGIC will supply 250,000 metric tonnes per annum of polypropylene each to Vinmar and Tricon Dry Chemicals, while Mitsubishi will get 120,000 MT, stated Advanced Petrochemical Company in its filing to Saudi Tadawul.

The supply of the entire polypropylene stock will be done from its Advanced Polyolefins Company (APOC) facility in Jubail Industrial City set up as a joint venture with South Korea’s SK Gas Petrochemical, it stated.

Once operational, the APOC plant will have the capacity to produce 800,000 metric tonne per annum of polypropylene.

As MRC informed earlier, Advanced Petrochemical Co. said its 85%-owned subsidiary, Advanced Polyolefins Co. (APOC), obtained a conditional approval to secure SAR 3 billion loan from Saudi Industrial Development Fund (SIDF), according to a bourse statement. The loan, which can be disbursed until June 2025, is repayable in 16 semi-annual installments, starting July 2026, over a period of eight years. The loan will be guaranteed by mortgage on all fixed assets of APOC to SIDF, in addition to providing corporate guarantees from the shareholders of APOC.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 1,760,950 tonnes in the first ten months of 2020, up by 3% year on year. Only high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments increased. At the same time, PP shipments to the Russian market reached 978,870 tonnes in January-October 2020 (calculated using the formula: production minus exports plus imports minus producers' inventories as of 1 January, 2020). Supply of exclusively of PP random copolymer increased.
MRC

MOSCOW (MRC) -- The UK chemical industry has given a mixed reaction to the post-Brexit trade and cooperation agreement announced on 24 December by the EU and UK, said Chemweek.

The Chemical Industries Association (CIA; London, UK) says there is “some relief” that the deal confirms zero tariffs on EU-UK trade. However, a lack of clarity persists around the deal’s regulatory impact, it says. “We have consistently called for the threat of tariffs to be avoided, so we very much welcome the commitment and hard work from both parties in securing that outcome,” says Steve Elliott, chief executive of the CIA. “Failure here would have seen an annual cost of at least GDP1.0 billion [USD1.3 billion] to the chemical industry."

UK prime minister Boris Johnson, announcing the deal last Thursday, highlighted the potential for divergence by the UK from EU chemical legislation. The UK plans to launch its own version of the EU’s Registration, Evaluation, Authorisation, and Restriction of Chemicals (REACH) regulation, called UK REACH. “The prime minister has mentioned chemicals as an industry where we have the potential to do our own thing. With that in mind we need to see, in particular, the extent of regulatory cooperation agreed with regard to the industry’s REACH responsibilities,” Elliott says.

UK chemical businesses have committed “a decade’s worth of investment” in gathering and presenting data for the EU’s REACH legislation, Elliott says. Failure to access this data following Brexit will leave the UK chemical industry “facing a bill of more than GDP1 billion in unnecessarily duplicating that work for a new UK regime.” Industry should work with the UK authorities to deliver a chemicals regulatory regime that is “efficient, innovation-friendly, and sensitive to international competitiveness. Such an approach will also enable us to provide reassurance over any health and environmental concerns,” Elliott says.

The EU-UK agreement overall “represents a mixed bag for our industry, [but] we shouldn’t underestimate the huge value that a deal brings in terms of certainty,” Elliott says. “Chemical businesses all over the UK have proved to be hugely resilient over this most uncertain and challenging of years, and a predictable trading environment with our most important market-place, coupled with emergence from COVID-19, should make 2021 a year to look forward to."

The Chemical Business Association (CBA; Crewe, UK), the country’s chemical distributor association, also notes regulatory uncertainty, particularly around the workability of UK REACH. “This deal, which has long been called for by business, is a long way from what the chemical sector required,” says Peter Newport, CBA chief executive. It means “a period of pragmatic enforcement by both parties is essential. Industry must be given the detailed information it needs in order to comply with the new rules and regulations. Let’s all hope the ambition of this deal matches its detailed reality,” Newport says. UK REACH is “duplicative and unaffordable,” he says.

Despite zero tariffs, the trade agreement also brings an increase in non-tariff barriers including customs requirements. “The chemical industry still has issues with this agreement,” Newport says. “It imposes unwelcome bureaucracy on access to the UK’s largest export market for chemicals and its major supplier, through new and complex customs processes, as well as creating unnecessary logistic and supply-chain issues."

The chemical supply chain will ultimately judge the deal on whether it can “continue to deliver key chemical components to thousands of manufacturing and process companies in the UK and the EU,” Newport says.

We remind that PetroChina has nearly doubled the amount of Russian crude being processed at its refinery in Dalian, the company's biggest, since January 2018, as a new supply agreement had come into effect. The Dalian Petrochemical Corp, located in the northeast port city of Dalian, was expected to process 13 million tonnes, or 260,000 bpd of Russian pipeline crude in 2018, up by about 85 to 90 percent from the previous year's level. Dalian has the capacity to process about 410,000 bpd of crude. The increase follows an agreement worked out between the Russian and Chinese governments under which Russia's top oil producer Rosneft was to supply 30 million tonnes of ESPO Blend crude to PetroChina in 2018, or about 600,000 bpd. That would have represented an increase of 50 percent over 2017 volumes.

Ethylene and propylene are feedstocks for producing PE and polypropylene (PP).

According to MRC's DataScope report, PE imports to Russia decreased in January-November 2020 by 17% year on year and reached 569,900 tonnes. High density polyethylene (HDPE) accounted for the greatest reduction in imports. At the same time, PP imports into Russia increased by 21% year on year to about 202,000 tonnes in the first eleven months of 2020. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.
MRC