Crude oil futures strengthen amid demand recovery hopes, supply tightness

MOSCOW (MRC) -- Crude oil futures strengthened during mid-morning trade in Asia Feb. 15 as the demand outlook brightened on hopes that the coronavirus pandemic is abating and on expectations of an upcoming stimulus package from the US, reported S&P Global.

The gains are also buoyed by the tightness in supply from OPEC+ production cuts and supplemented by disrupted production in the US.

At 10:52 am Singapore time (0252 GMT), the ICE Brent April contract was up by USD1.26/b (2.01%) from the Feb. 12 settle to USD63.68/b, while the March NYMEX light sweet crude contract was up USD1.26/b (2.11%) to USD60.73/b.

The progress made in combating the coronavirus pandemic globally contributed to the strong outlook for economic recovery across the broader financial markets, including oil.

"More countries and regions are easing lockdown measures with vaccine rollouts helping to contain the spread of the coronavirus," Margaret Yang, strategist at DailyFX, said in a Feb. 15 note.

"A marked decline in daily new infections painted a brighter outlook of economic recovery and normalization of business activity. A better-handled pandemic situation, alongside an impending Democratic fiscal stimulus package, have buoyed reflation hopes and led equity, crude oil and industrial metals higher," she added.

The US stimulus package, currently proposed at USD1.9 trillion, is making significant headway in its approval process, giving market participants hope for a smooth and speedy economic recovery in the US.

"A risk-on tone across markets continues to benefit commodity markets...with investors focused on the prospect of US stimulus measures boosting demand," ANZ analysts said in a Feb. 15 note.

Alongside bolstered expectations of demand recovery, supply side fundamentals are also providing support to the market, fueling the continued rally.

The OPEC+ alliance is maintaining supply curbs through the month, with Saudi Arabia reducing its production voluntarily by an additional 1 million b/d till March, which is clearing oil surplus in the market, according to analysts.

Furthermore, the risk of increased production from US shale oil companies amid rising oil prices has not materialized due to poor weather conditions in the region, making production difficult and keeping supply in the global markets tight.

"A barrage of a winter storm raging across the Permian Basin (is) resulting in crude streaming from those wells to slow or halt completely according to boots on the ground," Stephen Innes, chief global strategist at Axi, said in a Feb. 15 note.

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 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). Supply of exclusively PP random copolymer increased.
MRC

MOSCOW (MRC) -- Polypropylene (PP) imports to the Ukrainian market totalled 8,800 tonnes in January 2021, down by 11% year on year. Shipments of all grades of propylene polymers decreased, according to a MRC's DataScope report.

January 2021 PP imports to Ukraine dropped to 8,800 tonnes from 9,900 tonnes and 10,900 tonnes in January and December 2020, respectively, local companies encountered major restrictions on shipments from suppliers in the Middle East and in Russia. Overall imports of propylene polymers reached 135,300 tonnes in 2020.

The supply structure by PP grades looked the following way over the stated period.

January imports of propylene homopolymers (homopolymer PP) to the Ukrainian market decreased due to restrictions on exports from sellers in the Middle East and Russia and were 6,800 tonnes, whereas these figures were about 7,800 tonnes and 8,000 tonnes in January an December 2020, respectively. Overall homopolymer PP imports reached 102,800 tonnes in 2020.

Last month's imports of block copolymers of propylene (PP block copolymers) were 900 tonnes, compared to 900 tonnes and 1,300 tonnes in January and December 2020, respectively. Overall, 13,600 tonnes of PP block copolymers were imported last year.

January imports of stat-copolymers of propylene (PP random copolymer) fell to 900 tonnes from 1,000 tonnes and 1,300 tonnes in January and December 2020, respectively. Overall imports of PP random copolymers reached 16,400 tonnes in 2020.

Overall imports of other propylene copolymers were about 138 tonnes over the stated period.

MRC

MOSCOW (MRC) -- US polymer producer Total Petrochemicals & Refining USA said that its production unit at La Porte, Texas, is now producing polypropylene (PP), the company said in a letter Feb. 11 seen by S&P Global Platts.

"Our production unit that resulted in our force majeure declaration is now producing prime product," the letter said.

The complex was under force majeure for copolymer polypropylene products since Dec. 17 and previously said the restart of the unit was on schedule for Feb. 6 and had moved it up to Jan. 31.

The company has also said previously that it expects to be back to normal production in early-April.

The plant has nameplate capacity totaling 1.15 million mt/year of PP, according to S&P Global Platts Analytics data. The letter indicated that the company is now producing prime product with its PP unit.

The company was not available for immediate comment Feb. 11.

As MRC reported earlier, in November 2019, Total disclosed that itis evaluating construction of a new gas cracker at its Deasan, South Korea, joint venture (JV) with Hanwha Chemical.

According to MRC's ScanPlast report, 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). Supply of exclusively PP random copolymer increased.

Total S.A. is a French multinational oil and gas company and one of the six "Supermajor" oil companies in the world with business in Europe, the United States, the Middle East and Asia. The company's petrochemical products cover two main groups: base chemicals and the consumer polymers (polyethylene, polypropylene and polystyrene) that are derived from them.
MRC

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).
MRC

MOSCOW (MRC) -- Japanese refiners led by the biggest, Eneos Corp, shut down a fifth of the country's crude oil refining capacity after a powerful earthquake struck northeastern Japan knocking out power, bullet train lines and injuring more than 150 people, reported Reuters.

They refinery shutdowns in the world's fourth-biggest oil importer are another potential hit after the pandemic led to the evaporation of crude demand over the last year.

As much as 743,000 barrels per day (bpd) of oil-processing capacity has been idled, nearly 22% of Japan's roughly 3.4 million bpd capacity.

The refineries in locations from Yokohama to Sendai near the epicentre of the 7.3-magnitude earthquake, which struck a little before midnight on Saturday, either automatically shut down or were idled immediately for checks.

Eneos said on Monday it shut down its 145,000 barrel-per-day (bpd) Sendai refinery after it was hit by a large earthquake on Saturday. The company is still making checks on the refinery and does not have a restart date, the spokesman said.

Eneos later said the company's 270,000 bpd Negishi refinery, had also closed and it had no date for the resumption of operations.

The earthquake struck off the coast of northeastern Japan, injuring scores of people, triggering widespread power outages and causing damage across parts of northern Japan, including in Fukushima which is still recovering a decade after a bigger quake in the same area.

Fuji Oil Co Ltd shut the 143,000 barrel-per-day crude distillation unit (CDU) at its Sodegaura oil refinery in Chiba, east of Tokyo, after it was hit by an earthquake on Saturday, a company spokesman said on Monday.

Fuji Oil's only refinery was shut down automatically after the quake and the company plans to restart the CDU on Tuesday as no damage was found, the spokesman said.

Idemitsu Kosan did not immediately respond to a request to comment on media reports it had shut down its 190,000 bpd Chiba refinery, also because of the quake.

As MRC informed before, ENEOS Corporation (formerly known as JXTG Nippon Oil & Energy) restarted its naphtha cracker in Kawasaki on 1 February 2021. The company shut this cracker with an annual capacity of 515,000 tons/year of ethylene, 300,000 tons/year of propylene, and 105,000 tons/year of butadiene on 4 December, 2020, for repairment after a technical issue reported at the butadiene separation unit and initially planned to resume operations on 28 December.

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). Supply of exclusively PP random copolymer increased.
MRC