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Crude oil futures strengthen amid demand recovery hopes, supply tightness

February 16/2021

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 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, excluding producers' inventories as of 1 January, 2020). Supply of exclusively PP random copolymer increased.
Author:Margaret Volkova
Tags:Asia, PP, PE, crude and gaz condensate, PP random copolymer, propylene, LDPE, HDPE, ethylene, petrochemistry, Gazprom neft, Sibur Holding, Shurtans Gas-Chemical Plant, Russia, Saudi Arabia, USA, Uzbekistan.
Category:General News
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