MOSCOW (MRC) -- Brent oil futures may be trading at $27 per barrel but oil producers are selling their crude in the physical market at lower prices not seen since the aftermath of the Asian financial crisis of the late 1990s, said Hydrocarbonprocesing.
Most are offloading their oil for below $20 a barrel as the coronavirus pandemic savages demand and global supply rises amid a battle between Saudi Arabia and Russia for market share, according to traders, state oil firms, major refiners and prices quoted in physical markets.
While some crude grades typically sell at a discount to Brent, the market environment is making that gap even wider and other grades that usually cost more than the European benchmark are now cheaper for the most time ever.
The discounting is leaving revenue per barrel at a fraction of the prices factored into many 2020 budgets, which is likely to put even more pressure on government finances in some oil producing countries.
In extreme cases, once discounts and other costs have been applied, the value of some producers’ oil is close to $10 a barrel while Venezuela’s Merey crude sold for as little as $8 last week, according to Refinitiv data and traders.
While all types of crude have been hit, so-called light and medium sweet grades are the least in demand, meaning the outlook is bleaker for countries such as Azerbaijan, Kazakhstan and Nigeria, according to traders in oil from those countries.
Light grades with low density and sulphur are mostly used to make naphtha, gasoline and jet fuel, refined products that are both out of favour because of the economic fallout from the pandemic and also hard to store for long.
While Moscow and Riyadh remain locked in their battle, physical oil traders say a glut might push prices even lower as more countries lock down and trade slows.
This week, Russia got as little as $18 per barrel for its benchmark export grade medium sour Urals while Saudi Arabia was selling its Arab Light in Europe for $16, according to Reuters calculations based on official Saudi prices and Urals deals.
Canada’s key Western Canada Select grade was worth $15 a barrel on March 16, the last day of its monthly trading cycle, and will now probably sell closer to USD10 if its last discount of USD13.6 to the U.S. WTI benchmark is applied.
Traders said the pressure on prices and the desire on the part of sellers to offload crude quickly was evident in the way deals were being struck at the moment.
“Normally, we used to discuss cargoes at bid versus offer spreads of around 10 to 20 cents for several weeks before we closed a deal,” one trader at a major refining firm said.
As MRC informed earlier, North Atlantic Refining Ltd’s Come-by-Chance refinery in Canada will be the first to close in North America due to the coronavirus pandemic as refineries worldwide cut back operations. The company confirmed on Monday that it told stakeholders it was pausing production because of concerns about worker safety as the virus spreads.
As MRC informed earlier, US-based Phillips 66 is delaying three sizeable scheduled shutdowns at its refineries this year, the company said last week, because of concerns that coronavirus could spread among the refineries' workers if the maintenance goes ahead.
We also reminad that Phillips 66 remains open to developing another ethane cracker for its Chevron Phillips Chemical (CP Chem) joint venture, the refiner's CEO said in March 2018.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,093,260 tonnes in 2019, up by 6% year on year. Shipments of all PE grades increased. PE shipments rose from both domestic producers and foreign suppliers. The estimated PP consumption in the Russian market was 1,260,400 tonnes in January-December 2019, up by 4% year on year. Supply of almost all grades of propylene polymers increased, except for statistical copolymers of propylene (PP random copolymers).