MOSCOW (MRC) -- Crude oil futures were lower in midmorning trading in Asia July 3, after hitting a four-month high overnight on better-than-expected US labor market data, as concerns over rising COVID-19 cases continue to cap the upside, reported S&P Global.
At 10:05 am Singapore time (0205 GMT) on July 3, ICE Brent September crude futures were down 23 cents/b (0.53%) from the July 2 settle at USD42.91/b, while the NYMEX August light sweet crude contract was down by 24 cents/b (0.59%) at USD40.41/b.
US non-farm payrolls added 4.8 million jobs in June, exceeding market expectations of a 3.2 million gain, and bringing the nationwide unemployment rate down to 11.1% from 13.3%, according to data released July 2 by the US Department of Labor. The improvements in the labor market was largely due to a sharp increase in employment in the leisure and hospitality sectors which benefited as states reopened and economic activities resumed.
"Markets responded positively to the US labor market release, which mirrored other data suggesting that the economy is recovering quicker than median expectations," ANZ analysts said in a note July 3.
However, sharply rising coronavirus cases continue to weigh heavily on market sentiment even as the US head toward the long Fourth of July weekend, traditionally one of the busiest driving periods of the year. Florida, the third most populous state, set a new daily record of over 10,000 new infections July 2, bringing its total confirmed cases to nearly 170,000, according to media reports.
The US registered over 55,000 new infections nationwide July 2, marking a second consecutive day when cases rose more than 50,000, and the largest single-day total since the start of the coronavirus outbreak, according to media reports.
"And as significantly, the infection curve rose in 40 out of 50 states in a reversal that has mostly spared only the Northeast. Indeed, faltering re-opening of US States as COVID-19 cases rise remains the primary thorn in the oil bulls' side," said Stephen Innes, chief global markets analyst at AxiCorp, in a note July 3.
Beyond the US, a surge in infections post-lockdown plagued several other countries. Australia's second most populous state of Victoria reported 77 new cases on July 2, leading authorities to lock down more than 300,000 people in Melbourne suburbs to contain the situation. Meanwhile, Tokyo recorded 107 new cases on July 2, the highest the capital has seen since May 2, raising fears that Japan might yet declare another state of emergency, according to media reports.
On the supply front, OPEC+ continues to ensure a strict level of compliance among member countries to previously agreed oil production cuts, and requiring laggards to compensate for non-compliance. However, the current record production cuts of 9.7 million b/d is set to expire at the end of July.
"The market will have to confront the specter of rising OPEC supply in the near term. Russia's Energy Minister said the OPEC+ alliance hasn't made a decision on extending the deeper cuts past July, but warned that it should avoid repeated changes to the current plan," the ANZ analysts said.
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 595,170 tonnes in the first five month of 2020, up by 10% year on year. Deliveries of all ethylene polymers, except for linear low density polyethylene (LLDPE), rose partially because of an increase in capacity utilisation at ZapSibNeftekhim. At the same time, PP shipments to the Russian market was 457,930 tonnes in January-May 2020 (calculated by the formula production minus export plus import). Deliveris of exclusively PP random copolymer increased.