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Crude oil futures dip on stronger dollar, technical correction

February 18/2021

MOSCOW (MRC) -- Crude oil futures inched lower during mid-morning trade in Asia Feb. 17, coming under pressure from a stronger US dollar and a technical correction in the overbought oil markets, as well as rising expectations of easing supply curbs from OPEC+ at its March 3 meeting, reported S&P Global.

At 10:37 am Singapore time (0237 GMT), the ICE Brent April contract was down 21 cents/b (0.33%) from the Feb. 16 settle at USD63.14/b, while the March NYMEX light sweet crude contract was 20 cents/b (0.33%) lower at USD59.85b.

The US dollar strengthened on the back of higher US 10-year Treasury bond yields, which jumped amid inflationary expectations as the global economy continues its path of recovery from the coronavirus pandemic, causing weakness in oil markets.

"Oil is trading lower via a stronger US dollar, which is gaining a head of steam with US yields ripping higher, and both are stepping up to challenge the bullish reflation momentum," said Stephen Innes, chief global strategist at Axi, in Feb. 17 note.

Technical correction in the oil markets, where speculative trading had caused an extended long position and left the market overdue for a consolidation, also contributed to the decline, according to analysts.

"Given the scale of the rally in oil, the current fall in prices does not reflect the rally losing its steam, but merely a technical correction in an extremely overbought market. Oil can only fall so far, even if the drop in prices is sharp; I expect it to be short-lived," Jeffery Halley, senior market analyst at OANDA, told S&P Global Platts Feb. 17.

Meanwhile, severe cold weather in parts of the US, including Texas, continues to disrupt shale oil production and refining activities. However, given the temporary nature of the weather disruption and the offsetting effect of the reduced supply from oil producers and demand from oil refiners in the region, the supply disruptions are no longer providing additional support to oil prices.

Even without the boost from supply disruptions in North America, oil markets are by-and-large well supported, with a strong demand recovery outlook amid the receding pandemic and expectations of additional fiscal relief from the US, along with supply curtailments from OPEC+ and Saudi Arabia's additional 1 million b/d production curbs.

However, analysts cautioned that strong oil prices are heightening the risk of OPEC+ unwinding production cuts at a faster pace, which may reduce the supply tightness that is contributing to the supported market.

"There are suggestions that the group could ease output cuts slightly," ING Economics analysts said in a Feb. 17 note, adding that much also depends on how quickly Saudi Arabia rolls back its voluntary production cuts.

"Strong oil prices increase the possibility of US shale producers ramping up activities, which they can do fairly quickly, taking away some of the market share from OPEC+ producers. As such, the odds of OPEC+ making adjustments production cuts are rising quickly," Halley said.

Market participants will look to the weekly inventory reports by the American Petroleum Institute and the US Energy Information Administration, due later Feb. 17 and Feb. 18 respectively, for fresh pricing cues.

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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