Crude climbs amid tightened supply outlooks, easing US lockdowns

MOSCOW (MRC) -- Crude futures settled higher Jan. 25 amid tightened supply outlooks and easing COVID-19 restrictions in the US, reported S&P Global.

NYMEX March WTI settled 50 cents higher at USD52.77/b and ICE March Brent was up 47 cents at USD55.88/b.

Oil prices had moved higher overnight amid reports of tightened compliance with OPEC+ production quotas. Iraq is slashing oil production to making up for the excess production over its OPEC+ output quota. It will pump 3.6 million b/d this month and next month, the lowest since 2015 and down from 3.85 million b/d in December.

"OPEC remains steadfast in offering support as noted by Iraq's plan to reduce output to the lowest since 2015 to make up for previous non-compliance," TD Securities analysts said in a note.

Meanwhile, the recent resurgence in Libya's crude exports is under threat as the Petroleum Facilities Guard militia group has begun a strike at the Ras Lanuf, Marsa el-Hariga and Es Sider terminals over a salary dispute. Libyan crude and condensate output had surged to around 1.25 million b/d earlier this month, its highest in more than six years.

US commercial inventories are expected to have declined 1.7 million barrels to around 484.9 million barrels last week, according to analysts surveyed by S&P Global Platts Jan. 25. The counter-seasonal draw down would leave stockpiles around 8% above the five-year average of US Energy Information Administration data, in from 9.3% the week prior and marking the narrowest supply overhang since late November.

NYMEX February RBOB settled 1.24 cents higher at USD1.5611/gal and February ULSD climbed 1.79 cents to USD1.5939/gal.

Against this backdrop the market was also weighing mixed demand signals. In China, a new outbreak of coronavirus in several cities has sparked fears that the country could experience another wave of the pandemic. The local governments have imposed mobility restrictions in the affected cities, including Beijing, and urged citizens to refrain from travel during the upcoming Lunar New Year holiday.

But in the US signs that a post-holiday surge was slowing prompted some states to ease restrictions. California on Jan. 25 lifted a regional stay-at-home order that affected the vast majority of state residents. New York Governor Andrew Cuomo said Jan. 25 said that the state is planning to ease some restrictions amid a slowdown in new cases.

The easing of pandemic restrictions could add a tailwind to already upward trending US gasoline demand, which typically shows a steady climb toward an early March peak, according to EIA data. Apple Mobility data shows that US driving activity was higher for a third straight week last week, climbing nearly 2% from the week prior and up nearly 3% from a late-December nadir.

The front-month ICE New York Harbor RBOB crack versus Brent rallied to USD9.57/b in afternoon trading, on pace for the strongest close since mid-July.

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.
MRC

MOSCOW (MRC) -- China's butadiene imports in December jumped 88.5% from a month earlier to 24,753 mt, due to influx of deepsea cargoes, reported S&P Global with reference to the latest data from Chinese Customs showed Jan. 25.

From a year earlier, the imports dropped 53.1%.

The data showed that imports from Iran and Europe rose, with traders continuing to move cargoes to Asia as an arbitrage window remained open.

Imports from the Netherlands rose 19.5% from a month earlier to 4,743 mt, while imports from Iran stood at 12,532 mt, almost 10 times compared to 1,500 mt in November, according to the data.

Meanwhile, China imported 3,150 mt of butadiene from the US in December. The cargo inflow from the US to China surprised the market as an arbitrage window has been closed.

Market sources said an unplanned downstream rubber plant shutdown there prompted exports from the US to Asia.

Meanwhile, butadiene imports in 2020 jumped 56.8% from a year earlier to 455,265 mt, the data showed.

Market sources said despite higher imports in 2020, China's appetite for import cargoes would likely come down, in line with rising butadiene production capacity. According to Platts data, China added around 800,000-830,000 mt/year capacity in 2020.

Trading sources said Chinese suppliers target to sell their cargoes to end-users in South Korea. According to the latest customs data in South Korea, South Korea's butadiene imports from China stood at 25,231 mt, compared to 3,907 mt in 2019.

As MRC informed earlier, Yeochun Naphtha Cracking Centre (YNCC) started up its new butadiene plant in Yeosu, South Korea on 18 January, 2020. The new plant's capacity is 130,000 mt/year of butadiene.

Butadiene is the main feedstock for the production of acrylonitrile-butadiene-styrene (ABS).

According to ICIS-MRC Price report, ABS imports into Russia rose in the first eleven months of 2020 by 2% year on year to 32,000 tonnes from 31,300 tonnes a year earlier. South Korean shipments accounted for 62% (19,900 tonnes) in January-November 2020 versus the share of 58% (18,200 tonnes) a year earlier.
MRC

MOSCOW (MRC) -- Enbridge said it will defy the state of Michigan's order to shut down its Line 5 crude oil and propane pipeline system by May, and will instead challenge Gov. Gretchen Whitmer's permitting revocation in federal court, reported S&P Global.

Enbridge's Jan. 12 letter to the Democratic governor comes in response to Whitmer's decision in November 2020 to yank the Line 5's 1953 easement from when the pipeline system first came online, citing safety violations. In doing so, Whitmer said the dual pipelines had to close by May. The state also filed a lawsuit seeking legal recognition of the shutdown order.

Whitmer and Enbridge have maintained a confrontational relationship since she took office in the beginning of 2019, and tensions escalated last summer when the 540,000 b/d Line 5 was partially shuttered for much of this summer after an anchor support for the pipeline was damaged and eventually repaired.

The 645-mile line stretches from Wisconsin through Michigan and into Ontario, and is part of Enbridge's larger Mainline and Lakehead systems. Enbridge's planned Line 5 tunnel replacement project under the Great Lakes' Straits of Mackinac has progressed despite state opposition, although project completion is not expected until late 2024, according to Enbridge.

In terms of the more immediate fight, Enbridge said it has no intention of shutting down the Line 5 system because it said the state's unspecified allegations are baseless.

"Our dual lines in the Straits are safe and in full compliance with the federal pipeline safety standards that govern them," wrote Enbridge executive vice president Vern Yu in the response letter. "In the meantime, the dual pipelines will continue to operate safely until they are replaced on completion of the Tunnel Project."

Enbridge claimed the state lacks the authority to terminate or revoke the 1953 easement, and that Enbridge is in full compliance with revised safety agreements approved in 2017 and 2018 with the state under the previous Republican governor, Rick Snyder.

Enbridge added that the pipeline was reviewed and approved for operation by the US Pipeline and Hazardous Materials Safety Administration last year after the necessary repairs were made following the anchor support accident.

Enbridge is asking a federal court to dismiss the state's easement revocation.

"To make matters worse, the state of Michigan has offered no short-term or long-term plans for alternative propane or energy supply should Line 5 be shut down," Enbridge spokesman Michael Barnes added in a statement.

In yanking the easement in November, Whitmer cited "persistent and incurable violations of the easement's terms and conditions," including structural issues with the dual pipelines that provide Michigan customers with more than half of their propane supplies.

"Enbridge has imposed on the people of Michigan an unacceptable risk of a catastrophic oil spill in the Great Lakes that could devastate our economy and way of life," Whitmer said in a Nov. 13 statement. "That's why we're taking action now, and why I will continue to hold accountable anyone who threatens our Great Lakes and fresh water."

There's been greater scrutiny of Enbridge in Michigan since a significant 2010 oil spill from a separate Enbridge pipeline along the Kalamazoo River.

At the time, Alberta Energy Minister Sonya Savage called the move by Whitmer the latest in her "long-standing efforts" against Line 5. Savage predicted a "long, protracted process in the American court system."

Energy analysts have contented there is a low likelihood of the pipeline actually shuttering this spring given the protracted legal fight involved.

Enbridge reiterated that it is offering to meet with state officials to resolve any differences.

As MRC wrote previously, in late December 2019, Enterprise Products Partners and Enbridge agreed to jointly develop a deepwater crude oil export terminal offshore Houston, the latest sign of consolidation in the crowded field of US Gulf Coast export projects.

We also remind that Enterprise Products Partners' Mont Belvieu propane dehydrogenation unit in Texas restarted from planned maintenance in the first week of December, 2019. The PDH unit went offline for maintenance on November 13. That day, the company said in a filing with the Texas Commission on Environmental Quality that the RAC "B" turbine shut down, which resulted in flaring. The flaring was estimated to last 72 hours. The unit has a capacity of 750,000 mt/year of propylene.

Propylene is the main feedstock for producing polypropylene (PP).

According to MRC''s DataScope report, 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) -- OPEC's secretary general said on Tuesday he was cautiously optimistic the oil market would recover this year from the slump in demand brought about by the coronavirus pandemic, reported Reuters.

Monthly meetings of the Organization of the Petroleum Exporting Countries (OPEC) and its allies led by Russia - a grouping known as OPEC+ - are there to stop an imbalance from re-emerging, OPEC's Mohammad Barkindo told a virtual forum.

"We all agree that the recovery is fragile, there are still more uncertainties, but we are cautiously optimistic that the recovery will materialise this year," he said.

Oil prices have rallied to an 11-month high this month, helped by a Jan. 5 decision by most members of OPEC+ to hold production steady in February and a pledge by Saudi Arabia to voluntarily cut output.

Barkindo, speaking at the Atlantic Council Global Energy Forum, said that OPEC+ needed to be flexible and was seeking stable markets.

The energy minister for OPEC member the United Arab Emirates earlier told the same event he saw the start of the market recovery this year.

"This year the way we see it is a year of recovery, whether it's going to be the end of the year where we are supposed to reach the balance or the beginning of 2022," Suhail al-Mazrouei said.

The minister of the Gulf producer also said he sees good oil demand growth in China and India as more countries begin their coronavirus vaccination campaigns.

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.
MRC

MOSCOW (MRC) -- Hedge funds purchased petroleum derivatives for the 11th consecutive week, but the buying impulse that started with the announcement of successful coronavirus vaccines appears to be fading, said Hydrocarbonprocessing.

Hedge funds and other money managers bought the equivalent of 17 million barrels in the six most important petroleum futures and options contracts in the week to Jan. 19, according to data from regulators and exchanges.

Since early November, portfolio managers have purchased a total of 466 million barrels, taking their net holding to 822 million, the highest for a year.

In the latest week, there were small purchases of NYMEX and ICE WTI (+7 million), European gas oil (+6 million), U.S. diesel (+6 million) and U.S. gasoline (+1 million) but small sales of Brent (-3 million).

None of these changes was significant, except the focus on buying gas oil and diesel, which reversed the bias towards crude and gasoline in previous weeks, and suggested some opportunistic relative value-seeking.

The combined net long position across the six contracts is in the 78th percentile for all weeks since the start of 2013 while the ratio of long to short positions is in the 76th percentile. Fund positions therefore appear stretched on the long side, though not yet excessively so, implying there is still room for position building, but risks are now concentrated on the downside.

Bullish positions are most lopsided in gasoline and crude. Positioning remains neutral in diesel and gas oil, which likely explains some of the recent buying interest in those two fuels.

As per MRC, top oil exporter Saudi Arabia has cut supplies of February-loading crude for some Asian buyer by up to a quarter while meeting requirements of at least four others. This comes after Saudi Arabia pledged additional voluntary output cuts of 1 million barrels per day (bpd) in February and March under a deal between the Organization of the Petroleum Exporting Countries and its allies including Russia, a group known as OPEC+.

As MRC wrote previously, Formosa Petrochemical Corporation (FPCC) was running its crackers in Taiwan at 100% capacity utilisation in end-December, 2020. The company"s crackers have combined ethylene production capacity of 2.935 million metric tons/year. Meanwhile, FPCC is planning overhaul of the smallest cracker in mid-2021.

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.


MRC