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.
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