OPEC, Russia approve biggest-ever oil cut to support prices amid coronavirus pandemic

MOSCOW (MRC) -- OPEC and allies led by Russia agreed to a record cut in output to prop up oil prices amid the coronavirus pandemic in an unprecedented deal with fellow oil nations, including the United States, that could curb global oil supply by 20%, reported Reuters.

Measures to slow the spread of the coronavirus have destroyed demand for fuel and driven down oil prices, straining budgets of oil producers and hammering the U.S. shale industry, which is more vulnerable to low prices due to its higher costs.

The group, known as OPEC+, said it had agreed to reduce output by 9.7 million barrels per day (bpd) for May and June, after four days of talks and following pressure from U.S. President Donald Trump to arrest the price decline.

OPEC+ sources said they expected total global oil cuts to amount to more than 20 million bpd, or 20 percent of global supply, effective May 1. OPEC had the same figure in its draft statement but removed it from the final version.

The biggest oil cut ever is more than four times deeper than the previous record cut in 2008. Producers will slowly relax curbs after June, although reductions in production will stay in place until April 2022.

In a statement from the White House, Trump welcomed the commitment by Saudi Arabia and Russia “to return oil production to levels consistent with global energy and financial market stability.”

Earlier on Twitter, Trump wrote: “The big Oil Deal with OPEC+ is done. This will save hundreds of thousands of energy jobs in the United States.”

Thanking Russian President Vladimir Putin and Saudi King Salman for pushing the deal through, Trump added: “I just spoke to them... Great deal for all,”

Oil demand has dropped by around a third because of the coronavirus pandemic. Oil prices jumped more than $1 a barrel in Monday trading after the agreement, but gains were capped amid concern that it would not be enough to head off oversupply with the coronavirus pandemic hammering demand.

Total global cuts will include contributions from non-members, steeper voluntary cuts by some OPEC+ members and strategic stocks purchases by the world’s largest consumers.

Saudi Energy Minister Prince Abdulaziz bin Salman told Reuters that real effective cuts by OPEC+ would total 12.5 million bpd because Saudi Arabia, the United Arab Emirates and Kuwait would cut supplies steeper given higher output in April.

Three OPEC+ sources said non-members Brazil, Canada, Indonesia, Norway and the United States would contribute 4 million to 5 million bpd.

Three OPEC+ sources said the International Energy Agency (IEA), the energy watchdog for the world’s most industrialised nations, would announce purchases into stocks by its members to the tune of 3 million bpd in the next couple of months.

The IEA said it would provide an update on Wednesday when it releases its monthly report. The United States, India, Japan and South Korea have said they could buy oil to replenish reserves.

Trump had threatened OPEC leader Saudi Arabia with oil tariffs and other measures if it did not fix the market’s oversupply problem as low prices have put the U.S. oil industry, the world’s largest, in severe distress.

Canada and Norway had signalled a willingness to cut and the United States, where legislation makes it hard to act in tandem with cartels such as OPEC, said its output would fall steeply by itself this year because of low prices.

The Canadian government said in a statement it welcomed the OPEC+ deal, saying it was committed to achieving price certainty and economic stability.

The deal had been delayed since Thursday, however, after Mexico, worried about derailing its plans to revive heavily indebted state oil company Pemex, balked at the production cuts it was asked to make.

Mexican President Andres Manuel Lopez Obrador said on Friday that Trump had offered to make extra U.S. cuts on his behalf, an unusual offer by the U.S. leader, who has long railed against OPEC.

Trump said Washington would help Mexico by picking up “some of the slack” and being reimbursed later. He did not say how that would work.

A previous agreement by OPEC+ to cut production this year fell apart because of a dispute between Russia and Saudi Arabia, triggering a price war that brought a flood of supply just as demand for fuel was crushed by the coronavirus pandemic.

Banks Goldman Sachs and UBS predicted last week that Brent prices would fall back to $20 per barrel as cuts would not be enough to help offset severe demand destruction because of the restrictions to curb the coronavirus outbreak.
MRC

MOSCOW (MRC) -- Oil tanks at France’s storage and dispatch services company CIM are completely full due to the glut in global oil supply and the sharp drop in products demand, the director general of the company said, as per Reuters.

CIM, which handles around 40% of France’s crude imports, has 3 million cubic metres of crude storage capacity and 1.7 million cubic metres of refined products storage capacity, mostly at the Le Havre oil port hub. The firm also operates the 4,700 km Trapil pipeline network. “There is no demand, our tanks are full to the brim,” CIM’s Olivier Peyrin told Reuters.

Measures put in place by governments to stop the spread of the novel coronavirus outbreak have led to a sharp drop in fuel demand globally.

“Petrol demand has fallen by around 80% (in France), while jet fuel demand has tumbled by around 95%,” Peyrin said, with air traffic at France’s two major airports Orly and Charles De Gaulle, close to a standstill.

“I’ve never witnessed a crisis like this,” said Peyrin, who worked for oil major Shell before joining CIM in 2010.

“Before the crisis, we generally used to receive around 2 million tonnes of crude per month. Today we are at about 1 million tonnes,” he said. “For refined products, we use to handle 500,000 tonnes per month, now we are falling towards zero."

Peyrin said only one of three oil refineries supplied by CIM from Le Havre, Exxon Mobil Port-Jerome Gravenchon, was still operational. Total’s Gonfreville Normandy refinery has been halted following a fire, while the restart of its Grandpuits has delayed.

"We have reduced the team at Le Havre to a minimum just to receive the few deliveries we get, and expedite some refined products,” Peyrin said, adding that other storages facilities in France were in a similar situation.

As MRC reported earlier, South Africa’s largest refinery SAPREF will “minimize” maintenance to critical activities, a spokeswoman said, as a national lockdown looms to contain the spread of coronavirus. SAPREF, situated near Durban along the east coast, is a 50/50 joint venture between BP and Shell with a refining capacity of around 8.5 million tons a year. It accounts for 35% of the refining capacity in Africa’s most advanced economy, which is a net importer of petroleum products.

We also remind that the COVID-19 outbreak has led Shell Chemical to temporarily suspend construction on the massive plastics and petrochemicals site it's building in Monaca, Pa, USA.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 383,760 tonnes in the first two month of 2020, up by 14% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments increased due to the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 192,760 tonnes in January-February 2020, down by 6% year on year. Homopolymer PP accounted for the main decrease in imports.
MRC

1. Refinery employees worried about response to virus cases

MOSCOW (MRC) -- Employees at Valero Energy Corp’s Port Arthur, Texas, refinery expressed worries about the company’s slow response to keep the coronavirus from spreading there after two workers tested positive, reported Reuters with reference to four people familiar with the matter. Valero, the nation’s second-largest refiner, started to cut non-essential work and related contractors only this week after starting temperature checks last week - much later than other major U.S. refiners, according to the people.



MRC

MOSCOW (MRC) -- One worker was injured in a fire at Valero Energy Corp’s 125,000 barrel-per-day Meraux, Louisiana, refinery early Friday morning, reported Reuters with reference to a company spokeswoman.

Valero spokeswoman Lillian Riojas said the injured worker was taken to a local hospital. The extent of the person’s injuries was unknown. All other workers at the refinery were accounted for.

Energy industry intelligence service Genscape said the refinery was shut at about the time the fire broke out, shortly before 1 a.m. CDT (0600 GMT).

The fire broke out in the refinery’s hydrocracker, said sources familiar with plant operations. The hydrocracker converts gas oil into motor fuels, primarily diesel.

Riojas said the fire was contained to the area where it broke out.

WWL-TV in New Orleans reported that the fire began with an explosion that was felt up to 7 miles (11 km) away.

Valero is the second-largest refiner in the United States, operating 13 refineries with a combined crude oil processing capacity of 2.2 million bpd, 11.6% of the national total.

Valero has reduced production at at least seven of its US refineries. The company also operates a refinery in Quebec and one in Wales.

As MRC wrote previously, in late March 2020, an employee at Valero Energy Corp’s Meraux, Louisiana, refinery tested positive for the coronavirus.

We also remind that Valero Energy Corp restarted the small CDU at its Port Arthur refinery after repairing a valve on 25 September 2019. And in late October 2019, Valero Energy Corp shut the small crude distillation unit (CDU) at its Port Arthur refinery. The 75,000-bpd AVU 147 CDU was shut to repair a heat exchanger.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 383,760 tonnes in the first two month of 2020, up by 14% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments increased due to the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 192,760 tonnes in January-February 2020, down by 6% year on year. Homopolymer PP accounted for the main decrease in imports.
MRC

MOSCOW (MRC) -- Marathon Petroleum has cut rates at its 26,000 b/d Gallup, New Mexico, plant to about 70%, reported S&P Global with reference to sources.

Thus, the nation's largest refiner cut rates across the board, the level at which fellow refiner HollyFrontier said it was running its inland and Rockies refineries, including its 110,000 b/d Navajo plant in Artesia, New Mexico.

Marathon Petroleum is the latest US refiner to cut runs to balance weak product demand with strong supply, temporarily shutting its New Mexico plant on April 15 as coronavirus pandemic destroys demand.

As MRC informed before, a portion of Marathon Petroleum Corp’s 363,000 barrel-per-day Carson refinery in California was shut in late February 2020, following a fire.

We also remind that the gasoline-producing unit at Marathon Petroleum Corp’s 585,000-barrel-per-day (bpd) Galveston Bay Refinery in Texas City, Texas, remained shut for six weeks for repairs in late Juney-early August 2019. The 140,000-bpd gasoline-producing Fluidic Catalytic Cracking Unit 3 (FCCU 3) was shut on June 29 2019 to repair a leak. The refinery’s 65,000 bpd reformer, called Ultraformer 4, was also shut down.

Propylene is the main feedstock for the production of polypropylene (PP).

According to MRC's ScanPlast report, PP shipments to the Russian market were 192,760 tonnes in January-February 2020, down by 6% year on year. Homopolymer PP accounted for the main decrease in imports.
MRC