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Crude oil prices ease as US recovers from weather disruption, profit taking

February 20/2021

MOSCOW (MRC) -- Crude futures weakened during midmorning trade in Asia Feb. 19 as the support received from supply disruptions in the US due to freezing temperatures eased, allowing prices to return to fundamental values, reported S&P Global with reference to market sources.

At 11:08 am Singapore time (0308 GMT), the ICE April Brent contract was down USD1.39/b (2.17%) from the Feb. 18 settle at USD62.54/b while the NYMEX March light sweet crude contract fell USD1.54/b (2.54%) at USD58.98/b.

The US Energy Information Administration's weekly inventory report released late Feb. 18 estimated a 7.3 million barrel draw in crude inventories the week ended Feb. 12. The EIA also reported a 3.4 million draw in distillate inventories and a smaller-than-expected build of 700,000 barrels in gasoline inventories over the same period.

Despite the report seemingly signaling a bullish sentiment, price reaction was tepid as markets focused on adjusting for recent gains that came on the back of temporary supply disruptions in parts of the US.

"Oil prices are coming off the boil as the power crisis spurred on by the massive winter storm is starting to ebb ... the market will now be more inclined to shift back to regular supply and demand fundamentals," said Stephen Innes, chief global markets strategist at Axi, in a Feb. 19 note.

Warmer and milder temperatures are expected to return by Feb. 20, in the US, according to the US National Weather Service.

"As support from the wintery weather in US eases, traders are eager to take profit off the table before the weekend, resulting in the pullback," told David Lennox, resource analyst at Fat Prophets, to S&P Global Platts on Feb. 19.

Despite the recent easing in oil prices, analysts agreed the current levels still reflect the fundamental support the market is receiving from a recovering demand outlook and supply discipline from the OPEC+ alliance.

All eyes are on the next OPEC+ meeting on March 4, where the group is expected to discuss April production quotas. Given the strength in oil prices despite the recent pullback, some analysts said the odds of easing supply restrictions are increasing.

"Oil may cool slightly on this news [of easing supply curbs], but there is nothing here that should be a cause for concern. Saudi Arabia and OPEC+ will continue to be responsive to macro conditions and manage supply through what remains a period of uncertainty on demand," said Innes.

Rollbacks in productions quotas are expected to be conservative, as the alliance remains cognizant of the fragile state of demand recovery.

"Even before the the weather related disruptions in the US, shale production was not increasing significantly despite high oil prices, showing that the threat of US shale producers ramping up production was not severe. As we are still in the early days of vaccine-backed economic recovery, the alliance will likely keep production levels stable," said Lennox.

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, medicine, petrochemistry, Gazprom neft, SIBUR Neftekhim, Shurtans Gas-Chemical Plant, Russia, USA, Uzbekistan.
Category:General News
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