MOSCOW (MRC) -- Crude futures fell Wednesday as the focus turned to a lack of consensus among OPEC+ members ahead of the group's next meeting on June 8-10, reported S&P Global.
NYMEX July crude settled at USD32.81/b, down USD1.54, while ICE July Brent settled at USD34.74/b, down USD1.43.
"Oil's rally stalled out after Russia signaled they want to unwind productions in July, a sign that the battle for market share will resume as crude demand improves," said OANDA analyst Edward Moya. "Russia's comments on easing cuts in July served as a reminder that higher prices and improved crude demand will likely see OPEC+ compliance go out the window."
While news that Russia's oil ministry said global oil markets would balance in June or July pulled prices lower, subsequent news Wednesday that Russia's President Vladimir Putin agreed with Saudi Arabian Crown Prince Mohammed bin Salman on the need for "close coordination" put a floor in futures.
"Both sides noted the importance of joint efforts in achieving OPEC+ agreements in April to limit oil production," said a statement from the Kremlin. "They agreed that further close coordination on this issue should take place between energy ministers."
The OPEC+ alliance agreed in April to reduce output by 9.7 million b/d in May and June in response to plummeting demand caused by the coronavirus pandemic. Saudi Arabia has since said it will cut a further 1 million b/d in June.
Crude futures remained in contango, but the curve has flattened, reflecting a tighter supply/demand balance. The market appears less concerned that inventories will reach storage capacity, notably at the Cushing, Oklahoma delivery point for NYMEX futures.
Producers in the US and Canada have announced output cuts totaling roughly 2.7 million b/d. The coronavirus has also hit oil production in Latin America.
The market is hardly bullish. But the cuts may present a risk to supply down the road, according to the International Energy Agency.
Global energy investment is expected to plunge by 20%, or almost USD400 billion, in 2020, the agency said Wednesday.
The US shale sector is set to be hit hardest, with investment in shale forecast to fall by 50% in 2020 as investor confidence and access to capital has now "dried up," the IEA said.
In refined products, NYMEX June RBOB settled at 99.33 cents/gal Wednesday, down 5.56 cents, while June ULSD settled 1.87 cents lower at 97.21 cents/gal.
Refined products demand is expected to increase in the near term as more countries ease lockdown restrictions.
In the US, restrictions on non-essential travel have been eased or lifted in all 50 states, though major metro areas, including Los Angeles and New York City, remain on lockdown.
Likewise, some Asian countries are starting to ease restrictions, boosting gasoline demand.
According to S&P Global Platts Analytics, Apple Mobility Index data suggests "a recovery in driving activity is now underway among Asian countries outside China, with Malaysia, Thailand and Vietnam improving the most."
RBOB crack spreads have weakened over the past two trading days, however, likely reflecting some demand optimism fading from the market.
The NYMEX July RBOB crack spread against ICE Brent ended Wednesday at around USD8.07/b, down from USD9.07b Friday.
While US refinery runs are expected to have risen, but unemployment remains high, and export demand sluggish, which is putting a cap on RBOB cracks.
Kpler vessel tracking software shows roughly 19.4 million barrels of clean products being exported from the US to Latin America so far in May, down from a total of 33.5 million barrels in April, and 67.2 million barrels in March.
As MRC informed previously, global oil consumption cut by up to a third. What happens next in the oil market depends on how quickly and completely the global economy emerges from lockdown, and whether the recessionary hit lingers through the rest of this year and into 2021.
Earlier this year, BP said the deadly coronavirus outbreak could cut global oil demand growth by 40 per cent in 2020, putting pressure on Opec producers and Russia to curb supplies to keep prices in check.
We remind that, in September 2019, six world's major petrochemical companies in Flanders, Belgium, North Rhine-Westphalia, Germany, and the Netherlands (Trilateral Region) announced the creation of a consortium to jointly investigate how naphtha or gas steam crackers could be operated using renewable electricity instead of fossil fuels. The Cracker of the Future consortium, which includes BASF, Borealis, BP, LyondellBasell, SABIC and Total, aims to produce base chemicals while also significantly reducing carbon emissions. The companies agreed to invest in R&D and knowledge sharing as they assess the possibility of transitioning their base chemical production to renewable electricity.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 557,060 tonnes in the first three month of 2020, up by 7% year on year. High density polyethylene (HDPE) and linear low density polyethylene (LLDPE) shipments rose because of the increased capacity utilisation at ZapSibNeftekhim. Demand for LDPE subsided. At the same time, PP shipments to the Russian market was 267,630 tonnes in January-March 2020, down 20% year on year. Homopolymer PP and PP block copolymers accounted for the main decrease in imports.