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MOSCOW (MRC) -- As the race between
humans and virus gathers pace, the oil markets can only watch this tug-of-war
between rapidly spreading COVID-19 and a patchy vaccine deployment playing out,
reported S&P Global.
The
world watched rather euphorically when governments began approving vaccines last
month, but the persistent spread of the virus since has cast a shadow over the
outlook for 2021, though most analysts are optimistic that humans will take the
lead in this race in the second half of the year, if not earlier.
Despite
COVID-19"s recent resurgence in several countries, analysts expect a recovery in
oil demand and prices this year.
S&P Global Platts Analytics has
maintained its 2021 oil demand growth forecast at 6.3 million b/d over 2020,
with recoveries occurring in all regions and across different products, though
at varying levels.
"Overall, optimism on global economic growth outlook
on the back of reasonably well developed and effective vaccines is the main
driver of this demand forecast,” Kang Wu, Head of Global Demand, Risk
and Asia Analytics at S&P Global Platts said in a recent note.
On
January 11, Goldman Sachs said it sees Brent crude rising to USD65/b by the
middle of 2021, up to six months earlier than previously forecast. UBS has also
raised its forecast for Brent crude to USD60/b by mid-2021.
Underpinning
this optimistic view is Saudi Arabia"s surprising decision this month to
unilaterally cut 1 million b/d of production from February, and a demand boost
expected from the roll-out of the COVID-19 vaccines.
"Despite the
(demand-side) risks, we believe Saudi and OPEC+ actions have put a new price
floor of USD50/b for 2021. As a result, we believe a modest upward revision to
our price outlook is justified for Q1 2021,” Chris Midgley, Global
Director of Analytics, S&P Global Platts, said.
Platts Analytics sees
Dated Brent prices to be in low to mid USD50/b for much of 2021, with stronger
support in the second half of the year.
Oil demand outlooks may not have
been revised but downside risks are rising following a second wave of lockdowns
seen across Asia and particularly in China, which is widely seen as leading the
recovery.
Japan expanded its state of emergency this month, mirroring a
similar increase in restrictions across Asia recently as COVID-19 cases rise,
threatening to derail regional demand-side recovery. Malaysia declared a state
of emergency Jan. 12, a day after Indonesia, Southeast Asia"s largest buyer of
gasoline, started another two-week lockdown in the country"s most-populated
island of Java.
China, which had managed to successfully curb the spread
of the virus, has witnessed a resurgence in cases, which is dampening demand for
transportation fuels. The country on Jan. 17 registered 109 new COVID-19 cases,
the sixth continuous day to have more than 100 cases.
To prevent the
spread, several cities and towns in the northern part of China have been locked
down in January. Even in the low-risk regions in the south, the government has
called for citizens to stay locally during the coming Chinese New Year holidays,
when transportation fuel demand generally picks up.
India"s economy,
meanwhile, seems to be back on track and oil demand has been growing for four
straight months despite the country having the second largest number of cases in
the world. Mobility is on a firm upward trend and vehicle sales are soaring, all
pointing to strong transport fuels demand growth.
India"s driving
activity in December was at 145% against pre-COVID levels, up from 125% in
November, with early January showing further uptrend.
As the demand
recovery hobbles on, the supply side took on a curious twist this month with
Saudi Arabia"s surprising unilateral production cut announcement, which Russian
Deputy Prime Minister Alexander Novak called the kingdom"s "New Year"s
gift” to the oil market.
The cut accounts for about 10% of
Saudi Arabia"s current output and comes even as four-year oil ally Russia, the
least compliant OPEC+ member, lobbied for and won an increase in its production
quota.
Saudi Energy Minister Prince Abdulaziz bin Salman said Jan. 5 that
the cut will bring down oil inventories and support "our economy, the economies
of our friends and OPEC+ countries, and for the betterment of the industry at
all levels."
While the unilaterality of the decision has taken analysts
by surprise, Saudi Arabia seems to have at least scored a diplomatic coup with
Russia after relations were strained due to differences in opinion around output
policy.
The foreign ministers of the two countries recently held a joint
press conference where they talked about the importance of their cooperation in
contributing to the stabilization of energy markets.
"We value the
cooperation we have with our partners within OPEC+, on top of them Russia, and
we look forward to continued cooperation," Saudi Arabia"s foreign minister
Faisal bin Farhan said.
As MRC informed
previously, oil producers face an unprecedented challenge to balance supply
and demand as factors including the pace and response to COVID-19 vaccines cloud
the outlook, according to an official with International Energy Agency"s (IEA)
statement.
We remind that the
COVID-19 outbreak has led to an unprecedented decline in demand affecting all
sections of the Russian economy, which has impacted the demand for
petrochemicals in the short-term. However, the pandemic triggered an increase in
the demand for polymers in food packaging, and cleaning and hygiene products,
according to GlobalData, a leading data and analytics company. With Russian
petrochemical companies having the advantage of access to low-cost feedstock,
and proximity to demand-rich Asian (primarily China) and European markets for
the supply of petrochemical products, these companies appear to be
well-positioned to derive full benefits from an improving market environment and
global economy post-COVID-19, says GlobalData.
We also remind that in
December 2020, Sibur, Gazprom Neft, and Uzbekneftegaz agreed to cooperate on
potential investments in Uzbekistan including a major expansion of
Uzbekneftegaz’s existing Shurtan Gas Chemical Complex (SGCC) and the proposed
construction of a new gas chemicals facility. The signed cooperation agreement
for the projects includes “the creation of a gas chemical complex using
methanol-to-olefins (MTO) technology, and the expansion of the production
capacity of the Shurtan Gas Chemical Complex”.
Ethylene and propylene are
feedstocks for producing polyethylene (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. |
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