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MOSCOW (MRC) --The rally in crude oil
futures prices gained momentum during midmorning trade in Asia Feb. 18, drawing
strength from a large estimated draw in US crude inventory reported by the
American Petroleum Institute for the week ended Feb. 12, and ongoing supply
disruptions in US shale production due to freezing temperatures, reported S&P Global.
At 11:04 am
Singapore time (0304 GMT), the ICE April Brent contract was up USD1.12/b (1.74%)
from the Feb. 17 settle at USD65.46/b while the NYMEX March light sweet crude
contract was up 88 cents/b (1.44%) at USD62.03/b.
API's weekly crude oil
inventory report estimated a 5.8 million barrel draw in the week ended Feb. 12,
higher than analysts' expectations, contributed to the bullish sentiment in the
market.
Although the report also estimated a build in gasoline
inventories of 3.9 million barrels over the same period, it was still considered
positive overall for prices by market participants.
Production
disruptions in the US are turning out to be more severe than initially expected
by analysts, further fueling the upward movement in the market.
"Extreme
weather has likely shed output by 3.5 million barrels a day, a significant
amount that propelled a surge in oil prices," told Margaret Yang, DailyFX
strategist, to S&P Global Platts on Feb. 18.
Analysts at ANZ said in
a Feb. 18 note that there are growing fears the extreme weather will last longer
than the few days originally thought, with another storm forecast to hit eastern
and central US later in the week started Feb. 14.
The disruptions in oil
production have been met with lower demand for crude oil, balancing the
supply-demand equation to some extent.
"It is estimated that around 3.6
million b/d of refining capacity has been idled, and for now at least, crude oil
production losses appear to exceed the fall in refinery operating rates," said
analysts at ING Economics in a Feb. 18 note.
Nevertheless, analysts are
keeping in mind the temporary nature of the weather disruption, and focusing on
other fundamental factors of support such as the global recovery of energy
demand, as well as production outlook by OPEC+, to frame their overall view on
the market.
Ahead of the OPEC+ meeting on March 4 to discuss production
quotas for the alliance, Saudi Arabia's Energy Minister warned against
complacency in the response against the coronavirus, and said the level of
uncertainty is quite high and warrants extreme caution, which may have also
rallied market sentiment.
"A warning against complacency by Saudi's
energy minister may serve to boost oil prices further as the oil cartel may
remain vigilant against future uncertainties and may hold back tapering should
economic recovery derails from the projected path," said Yang.
The risk
of production cuts being rolled back remains amid strong oil prices, as some
producers will likely push for a more aggressive easing in cuts, said analysts
at ING Economics. Given the recent comments from the Saudi Arabian Energy
Minister, it seems like they would support a more gradual increase in
production, the analysts added.
Market participants will look to the
weekly inventory reports by the US Energy Information Administration, due later
Feb. 18, 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
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. |
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