Crude oil futures stable on US stocks draw, COVID-19 cases

MOSCOW (MRC) -- Crude oil futures were rangebound during mid-morning trade in Asia Aug. 6 as the continued spread of COVID-19 worldwide weakened sentiment, overturning some of the gains from the overnight rally which was spurred by the larger-than-expected drawdown in US commercial crude inventories, reported S&P Global.

At 10:44 am Singapore time (0244 GMT), the ICE Brent October crude futures was up 9 cents/b (0.2%) from the Aug. 5 settle at USD45.28/b, while the NYMEX September light sweet crude contract was down by 1 cent/b (0.02%) at USD42.18/b.

"Oil prices rose to their highest since early March on Wednesday after a large decline in US crude inventories and the US dollar weakened, but mounting COVID-19 infections had market participants worried about the demand outlook," a UOB analyst said in an Aug. 6 note.

US commercial crude inventories fell 7.37 million barrels to 518.6 million barrels for the week ended July 31, and narrowed the surplus to the five-year average to about 16%, US Energy Information Administration data released Aug. 5 showed.

This was significantly higher than the market's consensus of a 3.35 million barrels decline, but slightly below the American Petroleum Institute's expectations of an 8.6 million-barrel draw released on Aug. 4.

Nonetheless, it marked the second week in a row that US inventory stockpiles fell, indicating a clear downtrend after the 10.61 million-barrel decline the previous week, and helped to push the Brent marker past $46/b during the US trading session.

However, gasoline stocks rose for a second consecutive week, climbing 420,000 barrels to 247.81 million barrels, while nationwide distillate inventories were also up 1.59 million barrels at 179.98 million barrels. Total motor gasoline supplied, a proxy for demand, was also down 190,000 b/d on the week at 8.62 million b/d, leaving it nearly 11% behind year-ago levels.

This provides "warning signs that the recovery in demand remains fragile, and comes as the US driving season, the world's biggest seasonal demand period comes to an end," ANZ analysts said in a note Aug. 6.

Meanwhile, the continued downtrend in the US dollar had helped to support investor appetite in the broader commodities sector and crude prices, given the strong inverse correlation between the US dollar and crude prices.

At 10:44 am (0244 GMT), the US dollar index stood at 92.8, down 0.06% from 92.82 at the close.

However, the continued spread of COVID-19 worldwide remains the key drag on market sentiment and recovery in oil demand. Global COVID-19 cases stand at 18,727, 700, while total deaths had exceeded the 700,000 mark, latest data from John Hopkins University showed. While the number of daily infections globally has eased, it remains high with a confirmed 257,911 cases on Aug. 4.

"The recent surge in virus cases and the reimposition of some virus control measures will moderately slow the economic recovery in the near term, but expect the recovery to get back on track in September, assuming virus developments don't prompt the reimposition of widespread lockdown," Stephen Innes, chief global markets analyst at AxiCorp, said in a note Aug. 6.

"But ultimately, traders will continue to train their eyes on the ultimate vaccine prize," he added.

As MRC informed before, US crude oil inventories moved sharply lower during the week ended July 24 as exports and refinery demand climbed to multi-month highs, US Energy Information Administration data showed July 29. Commercial crude stocks fell 10.61 million barrels to 525.97 million barrels that week, EIA data showed. While the draw pushed stockpiles to 14-week lows, they remained more than 17% above the five-year average for this time of year.

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.

And 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 DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.

Formosa Plastics to shut EDC unit in Taiwan for maintenance

MOSCOW (MRC) -- Formosa Plastics Corporation (FPC), part of Formosa Petrochemical, is likely to shut its ethylene dichloride (EDC) unit for a turnaround, according to Apic-online.

A Polymerupdate source in Taiwan informed that the company has planned to halt operations at the unit in mid-August, 2020. The unit is expected to remain shut for around one month.

Located at Mailiao, Taiwan, the EDC unit has a production capacity of 1.6 million mt/year.

As MRC reported earlier, Formosa Plastics is also planning to shut its polyvinyl chloride (PVC) plant for a scheduled maintenance by mid of August 2020. Based in Mailiao, Taiwan, the PVC plant has a production capacity of 458,000 tons/year. It is slated to remain off-stream for a month.

EDC is an intermediate product for the production of PVC, which is used in the construction sector.

According to MRC's ScanPlast report, Russia's overall PVC production reached 557,000 tonnes in the first seven months of 2020, up by 1% year on year. Only three producers managed to increase their output.

Formosa Petrochemical is involved primarily in the business of refining crude oil, selling refined petroleum products and producing and selling olefins (including ethylene, propylene, butadiene and BTX) from its naphtha cracking operations. Formosa Petrochemical is also the largest olefins producer in Taiwan and its olefins products are mostly sold to companies within the Formosa Group. Among the company's chemical products are paraxylene (PX), phenyl ethylene, acetone and pure terephthalic acid (PTA). The company"s plastic products include acrylonitrile butadiene styrene (ABS) resins, polystyrene (PS), polypropylene (PP) and panlite (PC).

Sinopec Zhongke to start up its new PP plant in Zhanjiang by late August

MOSCOW (MRC) -- China’s Sinopec Zhongke, part of Sinopec Group, is readying to start up its new 550,000 tons/year polypropylene (PP) unit in Zhanjiang by the end of August, reported NCT with reference to sources close to the company.

The plant also houses a high density polyethylene (HDPE) unit with a capacity of 350,000 tons/year, of which start-up date was not revealed at the time of publication.

As MRC wrote previously, Sinopec Zhongke successfully conducted trial runs at its new 350,000 tons/year No. 1 PP unit on 9 June, 2020.

Based in Zhenjiang, China, the complex consists of two PP lines with combined production capacity of 550,000 tons/year, a 100,000 tons/year low density polyethylene (LDPE) plant and a 350,000 tons/year HDPE)/linear low density polyethylene (LLDPE) plant. All lines were initally expected to startup within July-August 2020 period.

We remind that top Chinese state refiner Sinopec Corp started up a USD6 billion new refinery and petrochemical plant in south China, making it the country’s third integrated complex to start operations in the past 18 months or so. The Sinopec venture, situated in coastal city of Zhanjiang, comprises a 200,000 barrel per day (bpd) crude oil refinery and an 800,000 tonne-per-year ethylene facility, built at a cost of 44 billion yuan (USD6.2 billion), Sinopec said in a statement. Two other complexes with combined refining capacity of 800,000 bpd have started up since early 2019, one built by privately-controlled Hengli Petrochemical Corp and the other by Zhejiang Petrochemical Corp.

According to MRC's DataScope report, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.

China Petrochemical Corporation (Sinopec Group) is a super-large petroleum and petrochemical enterprise group established in July 1998 on the basis of the former China Petrochemical Corporation. Sinopec Group"s key business activities include the exploration and production of oil and natural gas, petrochemicals and other chemical products, oil refining.

ExxonMobil commits to buying renewable diesel from Global Clean Energy

MOSCOW (MRC) -- ExxonMobil (Irvine, Texas) and Global Clean Energy Holdings (Long Beach, California) have signed an agreement for ExxonMobil to purchase 2.5 million barrels of renewable diesel annually for five years from Global Clean Energy Holding’s converted California refinery, beginning in 2022, reported Chemweek.

The renewable diesel will be sourced from a refinery acquired by Global Clean Energy in Bakersfield, California, which is being retooled to produce renewable diesel from Global Clean Energy’s patented varieties of camelina, a fallow land crop that does not displace food crops, and other non-petroleum feedstocks. Following scheduled production startup in 2022, ExxonMobil plans to distribute the renewable diesel within California and potentially to other domestic and international markets.

“Our agreement with Global Clean Energy builds on ExxonMobil’s longstanding efforts to develop and offer products that help meet society’s energy needs while reducing environmental impacts,” said Bryan Milton, president of ExxonMobil Fuels and Lubricants Company. “Chemically similar to petroleum-based diesel, renewable diesel can be readily blended for use in engines on the market today.”

In addition to camelina, various non-petroleum feedstocks, including used cooking oil, soybean oil, distillers’ corn oil, and other renewable sources will be refined to produce the renewable diesel.

Based on analysis of California Air Resources Board (CARB) data, renewable diesel from various non-petroleum feedstocks can provide life-cycle greenhouse gas emissions reductions of approximately 40–80% compared to petroleum-based diesel.

As MRC informed earlier, ExxonMobil aims to ease global oil and gas production shut-ins by about 40% to 200,000 b/d of oil equivalent as demand for transportation fuels slowly recovers from a second-quarter plunge. About 70% of the shut-ins expected to persist into Q3 are from government mandates, with the rest being market-based cuts, the company said.

We remind that the company plans to shut its cracker on Jurong Island with the capacity of 1 mln mt/year of ethylene and 450,000 mt/year of propylene for a 40-45 day turnaround in August, 2020. The exact dates of the shutdown were not announced.

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

According to MRC's DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.

ExxonMobil is the largest non-government owned company in the energy industry and produces about 3% of the world"s oil and about 2% of the world"s energy.

Saudi Aramco capacity increase on course, Reliance deal in question

MOSCOW (MRC) -- Saudi Aramco is continuing with plans to increase its maximum sustained capacity to 13 million b/d from 12 million b/d, despite the market downturn caused by the coronavirus pandemic, reported S&P Global with reference to the company President and CEO Amin Nasser's statement.

The capacity hike, which was first announced in March, will not have a significant impact on the oil giant's capex commitments for 2021, as it will be gradually expanded over a period of years, said Nasser, on a call to analysts and investors following the company's Q2 results announcement Aug. 9.

The expansion follows Aramco hitting a new maximum production rate of 12.1 million b/d in April.

"We demonstrated that the maximum sustained capacity is solid for when it needs to be utilized. Not only from the upstream side but from the export side and terminals," Nasser said. "The MSC is available for one year without any increase in capital."

On the call, the company also threw its announced acquisition of a 20% stake of Reliance Industries' oil-to-chemical business somewhat into doubt.

"The Reliance deal is going through the due diligence and we will make our decision after the due diligence," Nasser said. "We need to take our time and then decide."

The deal, which was first announced in August 2019, was originally set to be concluded before the end of March. Upon completion, it will enable to Saudi Arabia to expand its burgeoning footprint in India's fast-growing refining sector. Progress of the deal has been impacted by the pandemic.

Aramco's company's capex plans for next year will also be curtailed.

"We had previously given a guidance of USD40 billion to USD45 billion for next year and we are expecting to be significantly lower than that," Nasser said. "We will be looking at our flexible capital and our plan going forward."

Aramco, which revealed a year-on-year drop in profits of 73% for Q2, is still grappling with demand levels that were diminished by the pandemic.

Saudi domestic demand is now between 4.3 million and 4.5 million barrels of oil equivalent, down from 4.7 million barrels pre-pandemic. During the peak of the crisis, domestic demand for gasoline fell by about 75% and jet fuel plummeted by 50%, Nasser said

"Our expectation is that global demand is around 90 million b/d, compared to 100 million b/d pre-Covid and our expectation is by year-end it will be in the mid-90s," he said.

For its crude exports, Aramco ships 75% to Asia, about 15% to Europe and 10% to North America. The company is currently exporting 1.6 million b/d to China, which is lower than pre-pandemic levels, Nasser said.

The current breakdown of the company's investments is 40% for crude, 30% for natural gas and 30% for downstream.

"Gas is a growth area for us, especially considering increasing gas demand in the kingdom," Nasser said. "The Northern area is declining, but there is pick-up in the Eastern province, the Jafurah Basin and South Ghawar in conventional gas."

Work on developing the Jafurah Basin, the biggest unconventional gas field in the country has been ongoing throughout the pandemic, confirmed Nasser.

Saudi Aramco said in February it plans to invest USD110 billion to develop Jafurah, estimated to hold 200 Tcf of unconventional and un associated gas. It expects production from the field to start in 2024 and reach about 2.2 Bcf/d of sales gas by 2036, it said at the time.

For its official selling prices for crude, the company's continued aim to the price crude competitively in each market so it can meet its sales targets.

"Based on our assessment on the market, driven by demand and supply fundamentals. We get some feedback from buyers that we take into consideration," Nasser said. "Aramco determines the price it charges for its crude based on multiple market factors, with differ in each region."

Between 60% to 70% of its sales are based on Aramco's Far East formula. Therefore, the realization was impacted by Oman and Dubai prices declining at a steep rate, as it represents 70% of Aramco's sales, according to CFO Khalid H al-Dabbagh.

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

According to MRC's DataScope report, PE imports to Russia dropped in January-June 2020 by 7% year on year to 328,000 tonnes. High density polyethylene (HDPE) accounted for the main decrease in imports. At the same time, PP imports into Russia rose in the first six months of 2020 by 21% year on year to 105,300 tonnes. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.

Saudi Aramco, officially the Saudi Arabian Oil Company, is a Saudi Arabian national oil and natural gas company based in Dhahran, Saudi Arabia. Saudi Aramco"s value has been estimated at up to USD10 trillion in the Financial Times, making it the world"s most valuable company. Saudi Aramco has both the largest proven crude oil reserves, at more than 260 billion barrels, and largest daily oil production.