MOSCOW (MRC) -- Global refineries will increase crude processing sharply over the next six months to stabilise stocks of fuels such as gasoline and diesel – even if substantial coronavirus controls remain on travel and service sector businesses, said Hydrocarbonprocessing.
The prospective rise in processing and consequent draw down in crude inventories in the second and especially third quarters is what has been boosting futures prices and causing calendar spreads to tighten. The oil market’s rapid evolution from a massive production surplus last year to deficit has been most evident in the United States, where reliable data on stocks is published weekly by the Energy Information Administration (EIA).
U.S. inventories of crude and products outside the strategic petroleum reserve amounted to 1,283 million barrels on March 5, which was just 12 million barrels or 1% above the previous five-year average. Crude stocks were 29 million barrels or 6% above the five-year average, mostly as result of the disruption to refineries caused by cold weather and power failures in Texas last month.
But inventories of finished fuels and intermediate refinery products had already fallen to 15 million barrels or 2% below the average for 2016-2020. The gasoline shortfall has become particularly severe, with inventories 15 million barrels or 6% below the five-year average.
Total stocks of crude and products have fallen by 168 million barrels since July, largely reversing the 198 million build between March and June associated with the epidemic and volume war between Saudi Arabia and Russia. In the next few months, U.S. refineries will have to accelerate crude processing and fuel production to prevent stocks from depleting further.
If coronavirus controls on travel, services and international passenger aviation are relaxed, that would provide an even bigger boost to consumption. But it is important to stress that crude processing will have to accelerate even if controls are maintained to prevent fuel stocks from eroding to undesirably low levels.
The depletion of petroleum inventories is most obvious in the United States because of its high-frequency real-time data, but the phenomenon is worldwide.
Commercial petroleum inventories in the OECD countries have fallen by around 284 million barrels since July, reversing most of the 335 million barrel build between last February and June, according to the EIA. In March, OECD inventories are likely to fall slightly below the average for the previous five years, for the first time since the epidemic started to spread outside China in February last year.
As MRC informed before, slumping fuel consumption during the pandemic is accelerating the long-term shift of refining capacity from North America and Europe to Asia, and from older, smaller refineries to modern, higher-capacity mega-refineries. The result is a wave of closures, often centering on refineries that only narrowly survived the previous closure wave in the years after the recession in 2008/09.
We remind that PetroChina has nearly doubled the amount of Russian crude being processed at its refinery in Dalian, the company's biggest, since January 2018, as a new supply agreement had come into effect. The Dalian Petrochemical Corp, located in the northeast port city of Dalian, was expected to process 13 million tonnes, or 260,000 bpd of Russian pipeline crude in 2018, up by about 85 to 90 percent from the previous year's level. Dalian has the capacity to process about 410,000 bpd of crude. The increase follows an agreement worked out between the Russian and Chinese governments under which Russia's top oil producer Rosneft was to supply 30 million tonnes of ESPO Blend crude to PetroChina in 2018, or about 600,000 bpd. That would have represented an increase of 50 percent over 2017 volumes.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 241,030 tonnes in January 2021 versus 217,890 tonnes a year earlier. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, PP shipments to the Russian market reached 141,870 tonnes in January 2021 versus 123,520 tonnes a year earlier. Supply of homopolymer PP and PP block copolymers increased.
MRC