Crude oil futures continue their downward trend as US-Iran talks, COVID-19 pandemic, rising US crude stocks weigh on market

MOSCOW (MRC) -- Crude oil futures remained on a downward trajectory during mid-morning trade in Asia May 19, as the prospects of the Joint Comprehensive Plan of Action nuclear deal weighed on the market, while the American Petroleum Institute's report of an unexpected crude inventory build and concerns over the progress of the pandemic in Asia also souring sentiment, reported S&P Global.

At 10:52 am Singapore time (0252 GMT), the ICE Brent July contract was down 78 cents/b (1.14%) from the May 18 settle at USD67.93/b, while the June NYMEX light sweet crude contract was down 49 cents/b (0.75%) at USD65/b.

Overnight prices had taken a significant hit after media reports said that Russia's ambassador to the International Atomic Energy Agency, Mikhail Ulyanov, stated that the two sides had made "significant progress" towards a deal and that an "important announcement" will be made on May 19. Prices then clawed back some of the losses overnight after Ulyanov clarified that, while significant progress has been made, the negotiators needed more time and effort to address some remaining unresolved issues.

This morning's oil price trajectory, however, followed the broader downward movement seen overnight as the market remained cautious. The restoration of the JCPOA could lead to Iran returning to pre-sanctions oil production of about 3.9 million b/d next year, according to analysts.

Iran, anticipating a deal, has already been ramping up oil production, with total output reaching 2.43 million b/d in April, up 130,000 b/d from March, and the highest since May 2019. Much of the oil produced by Iran has gone to China.

The threat of increased supply from Iran comes amid uncertainties over oil demand, as the pandemic continues to devastate Asia. While COVID-19 infections in India are seen to be gradually declining after hitting a peak on May 6, Singapore, Thailand and Malaysia in Southeast Asia as well as Japan and Taiwan in North Asia continue to grapple with elevated infection numbers. These countries have renewed, or re-imposed, mobility restrictions in order to curb the spread of the virus.

In inventory news, the API data showed US crude inventories rising unexpectedly by 620,000 barrels in the week ended May 14. US gasoline and distillate inventories fell 2.837 million barrels and 2.581 million barrels, respectively, in the same period.

As MRC informed earlier, 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 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 the main feedstocks for the production of polyethylene (PE) and polypropylene (PP), respectively.

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 576,270 tonnes in the first three month of 2021, up by 4% year on year. Low density polyethylene (LDPE) and high density polyethylene (HDPE) shipments increased. At the same time, PP shipments to the Russian market totalled 410,890 tonnes in January-March 2021, up by 56% year on year. Supply of homopolymer PP and PP block copolymers increased.
MRC

MOSCOW (MRC) -- Zhenhai Refining & Chemical Co (ZRCC), part of Sinopec Group, is in plans to shut its linear low density polyethylene (LLDPE) plant for a scheduled maintenance in H2 May, 2021, according to CommoPlast.

The turnaround at this plant is scheduled to last until the first half of June, 2021.

Located in Ningbo, Zhejiang province, China, the plant has a production capacity of 500,000 mt/year.

As MRC informed earlier, Zhongke Refinery and Petrochemical Complex, also part of Sinopec Group, successfully conducted trial runs at its new 350,000 tons/year polypropylene (PP) unit on 9 June, 2020. Based in Zhenjiang, China, the complex consists of two PP lines with combined production capacity of 550,000 tons/year, a 100,000 tons/year low density polyethylene (LDPE) plant and a 350,000 tons/year high density polyethylene (HDPE)/LLDPE plant. All lines were expected to startup within July-August 2020 period.

According to MRC's ScanPlast report, March LLDPE shipments into Russia increased to 35,200 tonnes from 6,520 tonnes a year earlier. ZapSibNeftekhim significantly reduced its export sales and also raised its own production. LLDPE shipments were 74,850 tonnes in the first quarter of 2021, down by 22% year on year.

China Petrochemical Corporation (Sinopec Group) is a super-large petroleum and petrochemical enterprise group established in July 1998 on the basis of the former China Petrochemical Corporation. Sinopec Group's key business activities include the exploration and production of oil and natural gas, petrochemicals and other chemical products, oil refining.
MRC

MOSCOW (MRC) -- Shin-Etsu has declared force majeure (FM) on shipments of all polyvinyl chloride (PVC) grades from its plant in Pernis, the Netherlands, according to NCT with reference to a letter sent to the company's customers.

Thus, FM was declared on PVC supplies from this plant with the capacity of 450,000 mtyear on 6 May, 2021, following a critical and unforeseen leakage at the upstream vinyl chloride monomer (VCM) production plant in the Netherlands.

According to the letter, the company’s stock levels both for VCM and PVC were already at low levels following the turnarounds at these plants. Stocks were further reduced to critically low levels after some further delays in the start-up due to other unforeseen technical issues.

As MRC informed earlier, Shin Etsu declared force majeure on deliveries of all PVC grades from its plant in Pernis on October 13, 2020.

We remind that the completion of Shintech's USD1.49 billion expansions across the PVC chain at its Louisiana complex has been pushed back to the first quarter of 2021 from late 2020 because of a slowdown in the work to ensure safety protocols on coronavirus pandemic concerns. Shintech, the North American division of one of the largest Japanese companies - Shin-Etsu Chemical Co. Ltd.
MRC

MOSCOW (MRC) -- Italian energy group Eni is planning to spin off a minority stake in its new retail and renewable business next year, after announcing first quarter profits that missed expectations, reported Reuters.

Several European energy companies, including Spain's Repsol , aim to divest parts of their renewables business to raise money to reduce debt and pay for the shift away from oil and gas. Eni said it planned to list or sell a minority stake in the business that includes renewable energy and retail energy sales next year.

Analysts at Jefferies said the business, which has 10 million customers and plans to grow green power generation to over 5 gigawatts (GW) by 2025, could be worth EUR9 billion (USD10.89 billion) including debt. Eni expects the new unit to almost double its core earnings, or EBITDA, by 2024 to EUR1 billion.

"The combination of these two entities clearly could move the vehicle to the range of a double-digit multiple (to EBITDA)," CFO Francesco Gattei said on a call with analysts.

In the first quarter, Eni's adjusted net profit jumped almost five times to 270 million euros (USD327 million) as firmer oil prices offset lower production. The result was below an analyst consensus of about EUR440 million, in part due to a weaker performance in gas and refining margins. Cash flow from operations fell 12% to EUR1.6 billion.

Pandemic lockdowns throttled fuel demand last year prompting energy groups like Eni to rein in investments and returns. But Europe's energy companies this year have posted increased earnings boosted by higher oil prices as demand starts to pick up.

The group said it was looking for acquisitions to grow its green business to reach 4 GW of renewable capacity by 2024 from 1 GW this year, with a focus on the US and southern Europe. In 2021 the company expects to make disposals worth around EUR500 million while buying assets worth EUR1 billion.

As MRC wrote previously, Italian energy group Eni is evaluating conversion of its Livorno refinery in northwest Italy into a biorefinery, as part of the Italian company's wider strategy to make its activities more environmentally sustainable. Eni has already converted two of its Italian refineries and is looking to almost double its biorefining capacity to around 2 million mt/year by 2024, and expand this to at least five times by 2050, as part of its pledge to achieve complete carbon neutrality by 2050.

Ethylene and propylene are the main feedstocks for the production of polyethylene (PE) and polypropylene (PP), respectively.

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 576,270 tonnes in the first three month of 2021, up by 4% year on year. Low density polyethylene (LDPE) and high density polyethylene (HDPE) shipments increased. At the same time, PP shipments to the Russian market totalled 410,890 tonnes in January-March 2021, up by 56% year on year. Supply of homopolymer PP and PP block copolymers increased.

Eni, abbreviation of Ente Nazionale Idrocarburi, in full Eni SpA, Italian energy company operating primarily in petroleum, natural gas, and petrochemicals. Established in 1953, it is one of Europe's largest oil companies in terms of sales.
MRC

MOSCOW (MRC) -- POET, the largest biofuels producer in the United States, is in discussions with Flint Hills Resources to acquire the entirety of Flint Hills’ ethanol assets, both companies told Reuters on Thursday.

The deal would increase POET’s potential production capacity for ethanol by more than a third to 3 billion gallons per year, said Jessica Sexe, a spokeswoman for POET.

That could help the company tap into potential growth in the biofuels market as the Biden administration considers boosting biofuels as part of a broader strategy to decarbonize the nation’s economy to fight climate change.

Both Sexe and Jake Reint, spokesman for Flint Hills, declined to put a price on the deal.

Flint Hills, a refining, biofuels and petrochemical company, is based in Wichita, Kansas, and is currently the fifth-largest ethanol producer in the United States. Its biofuels division includes six ethanol plants with a combined capacity of about 800 million gallons per year, 1.5 million tons of distillers grains and about 200 million pounds of corn oil, Reint said.

Both companies are privately held.

The discussions come after a hard year for the ethanol industry because of the coronavirus pandemic, which sank demand for fuel. Ethanol’s top market is for use in blending with gasoline, something required under US law.

As MRC informed earlier, Encina Development Group (Encina; The Woodlands, Texas) and Flint Hills Resources said in February, 2021, they are exploring a collaboration to produce renewable chemicals and fuels from plastic waste. The two have signed a non-binding term sheet that proposes construction of a facility in Corpus Christi, Texas. Flint Hills would market the aromatic products produced at the Encina Corpus Christi facility and work with its affiliates to market renewable aromatic products from other Encina plants in the US.

We remind that in November 2019, Motiva Enterprises, the US refining arm of Saudi Aramco, acquired 100% of Flint Hills Resources chemical plant, adjacent to its Port Arthur, Texas, oil refinery. The Flint Hills plant operates a 1.57 billion-pound-per-year ethylene cracker, a unit producing nylon component cyclohexane, and a network of pipelines and storage caverns.

Ethylene and propylene are the main feedstocks for the production of polyethylene (PE) and polypropylene (PP), respectively.

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 576,270 tonnes in the first three month of 2021, up by 4% year on year. Low density polyethylene (LDPE) and high density polyethylene (HDPE) shipments increased. At the same time, PP shipments to the Russian market totalled 410,890 tonnes in January-March 2021, up by 56% year on year. Supply of homopolymer PP and PP block copolymers increased.
MRC