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MOSCOW (MRC) -- US petroleum
inventories ended last year approaching normal levels, as excess crude and
product stocks accumulated during the Saudi-Russian volume war and coronavirus
lockdowns were absorbed successfully, reported Reuters.
Total stocks of crude and
products, excluding oil stored in the strategic petroleum reserve, ended the
year 6% above the seasonal average for the previous five years, down from a
surplus of 14% at the start of July.
Excess petroleum inventories were
still in the 74th percentile for all weeks since the start of 1995, on the high
side, but down from a surplus in 92nd percentile at the middle of the
year.
Total inventories, including the strategic petroleum reserve, have
declined in 21 out of the last 26 weeks, by a total of 136 million
barrels.
Gasoline and distillate stocks have shown the fastest return to
normal while commercial crude stockpiles have faced a more sluggish
adjustment.
By the end of December, gasoline inventories had been reduced
to almost exactly in line with the five-year average, down from a surplus to the
five-year average of nearly 13% in April.
Distillate stocks, which
include road diesel and heating oil, had been reduced to a surplus of 7%, down
from 29% at mid-year, according to weekly statistics from the US Energy
Information Administration.
Commercial crude stocks were still 10% above
average, down from 19% in the middle of the year, indicating slower
progress.
Oil producers and refiners have adjusted at an exceptionally
fast pace following the record shock to oil consumption caused by the first wave
of the coronavirus and the associated lockdowns.
On the crude side,
excess inventories have been cut by lower output from domestic shale producers
and a fall in imports especially from Saudi Arabia.
On the products side,
stocks have been cut by slower crude processing and a decision to focus on
gasoline at the expense of middle distillates such as diesel and jet
fuel.
In final week of December, US refineries processed 14% less crude
than average for the previous five years, even though domestic consumption was
down by just 7%.
Processing restrictions are likely to persist in for the
next 2-3 months which should ensure stocks of products end the first quarter
below average.
Lower product stocks will support higher refining margins
and a sharp increase in crude processing during the second quarter.
Based
on futures prices, refining margins for gasoline and distillate delivered at the
end of the second quarter have already risen by 40% and 60% from their
post-crisis lows.
The principal risk to rebalancing comes from a
resurgence in coronavirus and the possibility of new lockdowns to contain it,
which could force fresh cuts in margins and processing.
Consumption of
petroleum products has recovered strongly, ending the year 7% below the
five-year average up from a deficit over 30% at one point in April.
The
strongest rebound has come in distillate, where consumption ended the year
running above the five-year average.
Distillate use is closely linked to
the business cycle, especially manufacturing and freight transportation, so it
has bounced back in line with the surge in manufacturing.
The resurgence
in diesel use is consistent with the widespread reactivation of manufacturing
reported in the Institute for Supply Management’s monthly surveys and the
Federal Reserve’s industrial production index.
Gasoline consumption has
also recovered, ending the year 10% below the five-year average, but improvement
has stalled and even reversed since the end of third quarter, when consumption
was down 5%.
Gasoline consumption has been hit by the new wave of
coronavirus infections and reimposition of travel restrictions and work from
home orders.
The worst-affected segment remains jet fuel, however, where
consumption ended the year 35% below the five-year average as a result of
international travel restrictions and nervousness about flying during the
epidemic.
But the reduction in excess distillate inventories and the
strength of diesel demand is encouraging refiners to end their focus on gasoline
production and target a more normal distribution of product outputs.
US
refiners boosted their combined production of distillate and jet to 74% of their
output of gasoline in the final week of the year, up from a recent low of just
55% in mid-October.
If manufacturing and freight transport remain strong,
while private motoring is hit by renewed coronavirus controls, refiners will
shift to prioritise distillate consumption by the end of the first
quarter.
As MRC informed before,
slumping fuel consumption during the pandemic is accelerating the long-term
shift of refining capacity from North America and Europe to Asia, and from
older, smaller refineries to modern, higher-capacity mega-refineries. The result
is a wave of closures, often centering on refineries that only narrowly survived
the previous closure wave in the years after the recession in 2008/09.
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 polyethylene (PE) and polypropylene
(PP).
According to MRC's ScanPlast report,
Russia's estimated PE consumption totalled 2,220,640 tonnes in 2020, up by 2%
year on year. Only shipments of low density polyethylene (LDPE) and high density
polyethylene (HDPE) increased. At the same time, polypropylene (PP) shipments to
the Russian market reached 1 240,000 tonnes in 2020 (calculated using the
formula: production, minus exports, plus imports, excluding producers'
inventories as of 1 January, 2020). |
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