Physical oil rally pauses due to weak margins

MOSCOW (MRC) -- After weeks of rising, prices of physical oil have begun to ease, traders and analysts say, as the rally succumbs to the reality of poor refinery margins and brimming storage tanks, said Hydrocarbonprocessing.

Refinery runs in Europe and China have been cut to allow time to sell off supplies of refined products before processing stored crude which is also stored in abundance, making the purchase of new oil shipments less attractive.

Meanwhile, refining profits for products have improved slightly but are still near their depths during the worst of the pandemic, as the world faces an uncertain recovery. "Margins are not at the bottoms but they’re very bad - that’s not going to help demand. We see these potential spikes in COVID-19, which are also not going to help matters,” one oil trader said. “The market was overdone and is going to need to retrace to reflect the realities now."

The price slowdown is visible globally: offers for heavier Angolan Dalia crude and Congolese Djeno are down at least a USD1 from just a week earlier to around a USD1 above dated Brent. Spot discounts for Abu Dhabi’s light sour Murban grade have widened nearly a dollar compared to their official selling price in just a few days.

Mediterranean crudes have also come off peaks: offers for CPC Blend have fallen by almost a dollar and Azeri crude is selling for a dollar less than earlier in June. "We haven’t bought anything in the last several weeks as everything is so expensive. CPC is still the most affordable, but still 20-30 cents away from profitability," a refiner said.

"Many Mediterranean refiners have cut runs, so hopefully weaker demand may push differentials down." In the United States, shale producers are now bringing back about a quarter of the volumes they shut as prices have improved, weighing on physical prices in the Permian and Bakken basins.

Much of the uptick in demand for physical crude deliveries came from China, but market sources say independent refiners there have shied away from the higher prices, cutting runs as they await new quotas from the government for crude imports.

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 721,290 tonnes in the first four month of 2020, up by 4% year on year. Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) shipments grew partially because of the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market totalled 347,440 tonnes in January-April 2020 (calculated by the formula production minus export plus import). Supply exclusively of PP random copolymer increased.

MRC

U.S. refiners aim to lock in crude volumes after getting burned by shut-ins

MOSCOW (MRC) -- U.S. refiners and other buyers of crude oil are reworking some of their supply contracts to guarantee volumes after many were cut off unexpectedly when a price collapse this spring led drillers to curtail production, sources said, said Hydrocarbonprocessing.

The effort reflects concern in the refining industry about the possibility of another drop in oil prices as world markets continue to reel from the economic fallout of the coronavirus outbreak.

Sellers will likely be forced to agree to the terms as buyers remain scarce in the oil market, traders and analysts said. U.S. oil prices crashed into negative territory for the first time in history in April as the pandemic crushed energy demand, prompting oil producers to shut in about 2 million barrels per day (bpd) of production, or nearly a fifth of the country’s output.

Normally a drop in prices is good for refiners, but only when they can get their hands on the cheap supply. Typically, physical crude sales agreements between buyers and suppliers at the wellhead specify a price differential to a floating benchmark that can rise or fall with the markets, but do not specify volumes that must be sold, allowing suppliers to hold back sales when the price is too low.

“Now they are trying to install volume thresholds into the lease contracts,” one of the sources, who works at an oil producer company, told Reuters. The seller typically has little clout in a lease agreement, said Sandy Fielden, analyst at Morningstar.

“Adding a volume clause helps guarantee supplies for buyers, but to make such a change now is acting after the horse has bolted and the only producers who can meet the volume requirements are those with enough tankage at the wellhead to give them that flexibility."

Some producers are now also selling at discounted rates after failing to deliver in previous months when they shut wells, in order to avoid legal disputes with buyers, some of the sources said. “You’re losing the price benefit now, but refiners are mad,” another source at a shale producer said. “There are a bunch of lease contracts that are going to read differently."

Some U.S. oil producers declared force majeure, an emergency clause typically set aside for acts of god or wars that provides some legal cover to breach contracts. But such declarations have drawn criticism from refining groups.

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 721,290 tonnes in the first four month of 2020, up by 4% year on year. Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) shipments grew partially because of the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market totalled 347,440 tonnes in January-April 2020 (calculated by the formula production minus export plus import). Supply exclusively of PP random copolymer increased.
MRC

China to be self-reliant in IMO-compliant fuel

MOSCOW (MRC) -- Chinese refiners have the capacity to produce 18.1 million tons of low-sulfur fuel oil (LSFO) this year, which would make the country self-sufficient in the new shipping fuel, an official with state major PetroChina said, said Hydrocarbonprocessing.

China has been striving to reduce its reliance on bunker fuel imports and is aiming to create its own marine fuel hub to supply northern Asia. About 20 refineries, mostly under state-run Sinopec Corp, PetroChina, CNOOC and Sinochem, installed equipment to produce 0.5% sulfur fuel that meets International Maritime Organization (IMO) rules that came into force at the start of this year.

China will be able to produce 22.6 million tonnes of the IMO-compliant fuel in 2021, rising to 29.6 million tonnes in 2022, Zhang Tong, a vice president of PetroChina International said at the debut of an LSFO futures contract on the Shanghai International Energy Exchange.

Zhang said if China fully releases the production capacity, the country would well be self-sufficient in supplying its bonded marine fuel market, which serves international shipping, estimated at about 12 million tonnes a year.

Before 2020, China imported almost all its bonded bunker supplies of high sulfur fuel oil from regional exporters such as Singapore and South Korea. By close of morning trade,the front-month INE LSFO contract ended the session 10.5% higher at 2,617 yuan (USD369.83) per tonne, with open interest of 19,842 lots, each of 10 tonnes.

China’s second oil product open to foreign investment after Shanghai crude oil, the new marine fuel futures is expected to attract strong investor interest from the oil industry, financial institutions and retail investors.

Ethylene and propylene are feedstocks for producing PE and 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

Petrobras opens access to natural gas processing units in antitrust deal

MOSCOW (MRC) -- Brazilian state-led energy company Petrobras will grant rival producers and other companies access to onshore natural gas processing facilities in a two-step process in the latest move toward opening Latin America's biggest market under the terms of an antitrust agreement signed in July 2019, reported S&P Global.

"According to the business model adopted, the company will start to act as a processor of natural gas supplied by other agents," Petrobras said in a statement late Wednesday. "With the measure, Petrobras reaffirms its commitment to contribute to the development of an open gas market that is competitive and sustainable."
Brazil launched the "New Gas Market" program last year after Petrobras agreed to end its monopoly in gas distribution and transportation. The program aims to lure private-sector investment to expand gas supplies, distribution networks and logistics and transportation infrastructure, including offshore export pipelines and onshore distribution pipelines. Brazil expects the wholesale opening of its gas market to increase output of the fuel, boost consumption and reduce prices.

The opening will be conducted in two steps, Petrobras said. In the first phase, which is currently underway, companies will be allowed to buy processing capacity for gas produced from fields in active production, Petrobras said. The first phase will be used "as a way to guarantee the continuity of the country's oil and gas production," Petrobras said.

In the second phase, any remaining processing capacity will be made available to other interested market entities after the first phase of negotiations with gas producers has been completed, Petrobras said. The second phase will be conducted on an annual basis, it said.

Under the terms of the antitrust agreement, international oil companies in Brazil will be allowed to sell gas directly into the Brazilian market. The gas was previously sold directly to Petrobras, which was tasked with onshore processing, distribution and delivery.

"When the new model is implemented, natural gas producers will no longer need to sell gas to Petrobras," the company said. "Producers could contract part of Petrobras' processing capacity and will continue to be the owners of the gas produced and all of its derivatives, allowing for the direct sale of their products in the market."

The processing will be allowed at any of Petrobras' 10 processing plants, which have the capacity to handle 93.4 million cu m/d, the company said. That includes the three biggest plants at Cabiunas (25.2 million cu m/d), Caraguatatuba (20.0 million cu m/d) and Cacimbas (18.1 million cu m/d), it said. Petrobras plans to maintain operational control of the units, which will not be sold under the company's USD20 billion-USD30 billion divestment program for 2020-2024, according to the company.

Interested companies will sign contracts covering firm, fixed use of available capacity or interruptible contracts covering excess processing capacity, Petrobras said. Payments for the processing will be negotiated between the parties, it said.

As MRC reported earlier, Braskem has recently announced that it has signed agreements with Petrobras for the supply of naphtha feedstock to Braskem's units in Bahia and Rio Grande do Sul. The deal, which covers five years after the expiry date of the current agreement at the end of this year, provides for the supply of a minimum volume of 650,000 metric tons/year, at an option for Petrobras to supply an additional volume of up to 2.8 million metric tons/year, at a price equivalent to international ARA reference price.

We remind that the chief executive of Brazilian state-run oil firm Petroleo Brasileiro said in December 2019 he wants to sell the company's stake in petrochemical company Braskem within 12 months.

Besides, Braskem is no longer pursuing a petrochemical project, which would have included an ethane cracker, in West Virginia. And the company is seeking to sell the land that would have housed the cracker. The project, announced in 2013, had been on Braskem's back burner for several years.

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

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 721,290 tonnes in the first four month of 2020, up by 4% year on year. Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) shipments grew partially because of the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market totalled 347,440 tonnes in January-April 2020 (calculated by the formula production minus export plus import). Supply exclusively of PP random copolymer increased.

Headquartered in Rio de Janeiro, Petrobras is an integrated energy firm. Petrobras' activities include exploration, exploitation and production of oil from reservoir wells, shale and other rocks as well as refining, processing, trade and transport of oil and oil products, natural gas and other fluid hydrocarbons, in addition to other energy-related activities.
MRC

Crude futures climbs amid tightened supply and demand outlooks

MOSCOW (MRC) -- Crude futures edged higher June 22 as the market weighed a tightening global supply picture against uncertain demand outlooks amid a spike in COVID-19 cases around the world, reported S&P Global.

NYMEX July WTI settled 71 cents higher at USD40.46/b and ICE August Brent settled up 89 cents at USD43.08/b. Front-month WTI last settled above USD40/b on March 6.

BofA Securities has raised its oil price forecast for the next two years on signs of faster-than-expected global oil demand recovery, massive industry spending cuts and strong OPEC+ adherence to curbing crude supplies.

Brent crude will likely average USD43.70/b this year, up USD6.70 from a previous forecast on March 8, BofA Global Research said in a report.

"Our more constructive crude oil view reflects renewed confidence in the ongoing global oil demand recovery, in the damage to supply created by deep capex curtailments across the oil industry, and in the solid OPEC+ agreement to curb output," BofA Global Research said.

The bank also raised its 2021 and 2022 Brent price forecasts to USD50 and USD55/b respectively.

NYMEX July RBOB settled up 1.97 cents at USD1.2913/gal and July ULSD climbed 72 points higher to USD1.2186/gal.

US crude inventories likely edged lower last week as an expected uptick in exports and refinery demand was blunted by a likely increase in production, an S&P Global Platts analysis showed June 22.

Commercial crude stocks are expected to have declined by 100,000 barrels to around 539.3 million barrels during the week ended June 19, analysts surveyed by Platts said.

Tensions between Libya and its neighbor Egypt flared this weekend after Cairo threatened to take "direct" action if Libya's UN-recognized Government of National Accord advanced on the Libyan city of Sirte. Further armed conflict in the region could lead to a prolonged shutdown of Libya crude production.

State-owned National Oil Corp. briefly restarted production at the 75,000 b/d El Feel and 300,000 b/d Sharara fields earlier this month after a nearly five-month long oil blockade.

The interjection of yet another actor into Libya's chaotic civil war could portend an extended shut in of Libyan crude production. However, Libyan crude price differentials were so far unfazed by the rhetoric. Platts Es Sider crude was assessed June 22 at a USD1.70/b discount to the Med dtd strip, the strongest since March 6.

As MRC informed before, global oil consumption cut by up to a third in Q1 2020. 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 721,290 tonnes in the first four month of 2020, up by 4% year on year. Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) shipments grew partially because of the increased capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market totalled 347,440 tonnes in January-April 2020 (calculated by the formula production minus export plus import). Supply exclusively of PP random copolymer increased.
MRC