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Crude oil futures rise as OPEC+ rolls over production cuts, stronger US dollar slows rally

March 05/2021

MOSCOW (MRC) -- Crude oil futures rose during mid-morning trade in Asia March 5, even as a stronger US dollar slowed the rally triggered by the OPEC+ decision to keep production quotas largely steady in April, reported S&P Global.

At 11:14 am Singapore time (0314 GMT), the ICE Brent May contract was up by 68 cents/b (1.01%) from the March 4 settle to USD67.42/b, while the April NYMEX light sweet crude contract was up by 60 cents/b (0.94%) to USD64.43/b.

The overwhelmingly bullish sentiment in the oil market was held back slightly by the rapid appreciation in the US dollar, which made crude more expensive for buyers holding other currencies. At 11.00 am in Singapore, the March ICE US dollar index futures were trading at 91.670, up 0.801% from the March 4 settle.

"The markets are on a bit of a fence this morning despite the bullish OPEC+ decision, as rising treasury yields and safe haven demand has pushed the US dollar up, and a risk-off sentiment has gripped the markets," Pan Jingyi, senior market strategist at IG, told S&P Global Platts March 5.

The appreciation in the dollar has provided some resistance to the surge in oil prices after the OPEC+ alliance decided to keep production quotas largely steady for the month of April, with Saudi Arabia extending its unilateral 1 million b/d output cut indefinitely. Only Russia and Kazakhstan were granted 130,000 b/d and 20,000 b/d increases in their production quota, respectively.

The coalition's decision means that it will keep 8 million b/d of crude production - or roughly 8% of pre-pandemic supply - off the market for at least another month. The oil market reacted by sending the Brent and NYMEX light sweet crude markers hurtling 4.17% and 4.16% higher to settle at USD66.74/b and USD63.83/b, respectively, on March 4.

Delegates to the OPEC+ meeting said the decision was prompted by lingering uncertainty over the economic recovery, which could still be derailed by uneven vaccine rollouts and stringent lockdown measures.

"I belong to the school of being conservative," Saudi Arabia's energy minister Prince Abdulaziz bin Salman said after the meeting, having earlier told OPEC+ that "the right course of action now is to keep our powder dry, and to have contingencies in reserve to insure against any unforeseen outcomes."

The OPEC+ decision came as a surprise to the market, which had braced itself for the possibility of a significant increase in the coalition's supply from April onwards, and had at the very least expected Saudi Arabia to end its 1 million b/d production cut.

"Expectations were high for the Saudis to end their voluntary 1 million b/d cut and for the group to collectively raise output by 500,000 barrels," Edward Moya, senior market analyst at OANDA, said in a March 5 note.

"Oil prices could rip higher now that a tight market is likely up through the summer. WTI Crude at USD75/b no longer seem outlandish and Brent could easily top $80/b by the summer," Moya added.

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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