MOSCOW (MRC) -- Oil prices bounced nearly 7% after a three-day selloff drove them to their lowest in almost two decades as demand plummeted due to the coronavirus and supplies surged in a fight for market share between Russia and Saudi Arabia, said Hydrocarbonprocessing.
Benchmark Brent, which has lost half its value in less than two weeks, got some respite as investors across financial markets assessed the impact of massive central bank stimulus measures. Brent crude LCOc1 jumped USD1.43, or 5.75%, to USD26.33 a barrel by 1045 GMT, after plunging to USD24.52 on Wednesday, its lowest level since 2003.
U.S. crude CLc1 gained $2.40, or 11.8%, to USD22.77 after dropping nearly 25% in the previous session to an 18-year low. But analysts said gains were likely to be temporary, as tumbling demand was compounded by the collapse this month of a deal on supply curbs between OPEC and other producers.
The drop in demand, particularly in transportation, is also leading to a rapidly growing glut in refined products such as jet fuel and gasoline. Saudi Arabia, the de facto leader of the Organization of the Petroleum Exporting Countries, which kicked off a price war with Russia that sent prices into tailspin, is planning to keep pumping at a record rate of 12.3 million barrels per day (bpd) for months.
"From April 1, about 4 million bpd could flood the markets, potentially pushing down crude oil prices into the teens,” Jefferies said in a note. “Unless somebody intervenes, no oil producer benefits from the current environment." But analysts have still been slashing growth forecasts for China, where the disease erupted, to the lowest levels in decades.
In the United States, where dozens of shale oil and gas drillers and services companies risk bankruptcy, senators on Wednesday urged Saudi Arabia and Russia to stop the price war during talks with the kingdom’s envoy to Washington.
The senators urged President Donald Trump to impose an embargo on oil from the two countries. Meanwhile, the spread of the virus elsewhere is showing no sign of abating, with governments resorting to lockdowns in a bid to contain the disease, hammering economies and raising the prospect of a global recession.
Central banks have moved to mitigate the spiraling economic and financial fallout, with the European Central Bank kicking off a 750 billion euro (USD820 billion) emergency bond purchase scheme after an unscheduled meeting on Wednesday.
“While the spreading of the virus has further to go and oil prices further to drop, we are now probably getting very close to peak fear in western and global financial markets,” said Bjarne Schieldrop, chief commodities analyst at SEB.
As MRC informed earlier, Saudi Arabia has stepped up efforts to squeeze Russia’s Urals oil grade out of its main markets by offering its own cheap barrels instead after their long-standing deal to support global oil prices fell apart, reported Reuters with reference to seven oil sources. Cooperation between Moscow and Riyadh dramatically collapsed last week after Russia refused to support deeper oil output cuts desired by Saudi Arabia to fight falling oil demand as a result of the spread of the coronavirus outbreak.
As MRC informed before, in October 2018, Saudi Aramco and Total launched engineering studies to build a giant petrochemical complex in Jubail. Announced in April 2018, the world-class complex will be located next to the SATORP refinery, operated by Saudi Aramco (62.5%) and Total (37.5%), in order to fully exploit operational synergies. It will comprise a mixed-feed cracker (50% ethane and refinery off-gases) - the first in the Gulf region to be integrated with a refinery - with a capacity of 1.5 million tons per year of ethylene and related high-added-value petrochemical units. The project represents an investment of around $5 billion and is scheduled to start-up in 2024.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 215,390 tonnes in the first month of 2020, up by 23% year on year. Shipments of all grades of high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) increased due to higher capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market were 127,240 tonnes in January 2020, up by 33% year on year. ZapSibNeftekhim's homopolymer PP accounted for the main increase in shipments.