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Crude oil futures stronger on hopes of pandemic easing, improved fundamentals

February 05/2021

MOSCOW (MRC) --  Crude oil futures continued on an upward trajectory during mid-morning trade in Asia Feb. 4, as the abatement of the pandemic situation and simmering hopes over a US stimulus package provided a boost to oil markets already invigorated by an uptick in demand and the start of Saudi Arabia's output cut, reported S&P Global.

At 11:11 am Singapore time (0311 GMT), the ICE Brent April contract was up 44 cents/b (0.74%) from the Feb. 4 settle to USD59.28/b, while the March NYMEX light sweet crude contract was up 40 cents/b (0.71%) to USD56.63/b.

The bullish step in the oil market comes amid signs that the pandemic is starting to ease globally, with expectations of a colossal US stimulus package also inspiring confidence among investors that the economic climate will soon improve.

"There are a number of factors behind crude's rise, but head and shoulders above all of them is the observation that the coronavirus might finally be retreating. It is a natural abatement for most part, but it is also being helped by increased vaccine coverage," Vandana Hari, CEO of Vanda Insights, told S&P Global Platts Feb. 5.

"Investors are confident that this is the beginning of the end for the pandemic as it can be seen that infection, hospitalization and fatality numbers have steadily been dropping in the past two to three weeks globally," Hari added.

Analysts added that the demand outlook for oil has improved significantly as the pandemic situation has alleviated.

In a Feb. 5 note, Stephen Innes, chief global market strategist at Axi brought to attention that two VLCCs were scheduled to deliver North Sea oil to China in late March, adding this "confirms that real demand is driving the front end of the curve."

Analysts also said that investors viewed Saudi Aramco's release of the official selling prices with a bullish hue. OSPs for Saudi Aramco's crude into Asia remained unchanged for March, while OSPs for buyers in Europe and the US were raised.

The release of Saudi Aramco's OSPs follows the start of Saudi Arabia's 1 million b/d output cut, which began on Feb. 1, and has curtailed supply in the market.

"The Saudis had a very different view of demand when they announced their output cuts but, being hawkish, they will likely persist with them regardless of the strong demand. This could see Brent hurtling past the USD60/b mark," Hari concluded.

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 Uzbekneftegazs 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 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, exluding producers' inventories as of 1 January, 2020).
Author:Margaret Volkova
Tags:PP, PE, crude and gaz condensate, propylene, LDPE, HDPE, ethylene, petrochemistry, Penoplex-Kirishy, Sibur Holding, Saudi Aramco, Shurtans Gas-Chemical Plant, Russia, Saudi Arabia, USA, Uzbekistan.
Category:General News
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