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Crude slides on stronger dollar; market eyes OPEC+ supply boost

March 01/2021

MOSCOW (MRC) -- Crude oil futures finished the week sharply lower as a stronger dollar and expectations of rising global supply continued to pull prices off 13-month highs seen earlier last week, reported S&P Global.

NYMEX April WTI settled USD2.03 lower at USD61.50/b and ICE April Brent declined 75 cents to USD66.13/b.

Notably the Feb. 26 session was the last day of trading for the April Brent contract, and its prompt expiry may explain why it showed a relatively modest 1% decline compared with front-month WTI, which slid more than 3% in the session. The second-month Brent contract settled down around 2.6% on the day.

Oil price declines accelerated late in the session as the US dollar tested three-week highs. The ICE US dollar index was around 0.8% higher in afternoon trading at around 90.905, the highest since Feb. 17 and testing levels last seen in early February.

NYMEX March RBOB settled down 1.53 cents at USD1.8770/gal and March ULSD finished 5.01 cents lower at USD1.8565/gal.

Rising US bond yields as investors priced in expected higher inflation as a result of government stimulus and a quick economic recovery were driving the dollar higher. A stronger dollar makes oil more expensive for buyers using other currencies.

A University of Michigan report released Feb. 26 showed February consumer sentiment exceeded market expectations but was still down from January. The report showed inflation expectations of 3.3% for 2021, unchanged from the previous month's report and the highest since 2014.

Expectations of an announcement of supply increases from OPEC+ at its next meeting on March 4 and concerns over the scale of spare Saudi capacity were also dragging on oil prices.

"A return to the originally planned phase 3 would mean an increase in supply of 2.25 million b/d versus March levels," HSBC's Global Head of Oil and Gas Equity Research, Gordan Gray, said. "Market fundamentals could probably just about absorb such an amount in Q2 - if demand recovers enough - but an announcement of an immediate increase on this scale would risk spooking the market badly. The most likely outcome is a staged move to phase 3 supply levels - probably a 0.5 million b/d increase at most in April."

"A conservative agreement should support prices in the short term but there's still much more spare capacity in OPEC+ than there is likely demand growth," Gray said. "Global demand could conceivably be 5-6 million b/d higher in H2 2021 than in Q1, but this must be seen against around 8 million b/d of OPEC+ supply curbs still in place."

ICE New York Harbor RBOB crack versus Brent edged up to USD16.37/b in afternoon trading, just 5 cents under the one-year high seen last week.

The majority of the plants along Texas's refinery row are in the process of restarting, these plants are not likely to return to their pre-storm capacity until mid-March, according to company statements and filings made with state regulatory agencies detailing emissions events, which go along with plant restarts.

S&P Global Platts Analytics estimates that about 5.4 million b/d of US Gulf Coast crude capacity was down for the week ended Feb. 26, out of the region's 9.96 million b/d. Almost all of the outages were in Texas, which has 5.1 million b/d of crude processing capacity at its coastal refineries and 742,000 b/d of inland refining capacity, according to US Energy Information Administration data.

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:PP, PE, crude and gaz condensate, PP random copolymer, propylene, LDPE, HDPE, ethylene, gas processing, petrochemistry, Gazprom neft, Sibur Holding, Shurtans Gas-Chemical Plant, Russia, Saudi Arabia, USA, Uzbekistan.
Category:General News
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