MOSCOW (MRC) -- Crude oil futures dipped on Aug. 14 as a wave of reports last week painted a gloomier economic outlook with slower demand recovery as the coronavirus pandemic continued to take its toll, reported S&P Global.
Despite more bullish US news this week in the form of weaker crude production and falling storage volumes, the global picture remained more bearish, with forecasts of lower-than-expected worldwide demand as the OPEC+ alliance increases its output, more US shale producers reverse curtailments and more tankers unload their stored oil.
NYMEX September WTI fell by 23 cents and settled at USD42.01/b, while ICE October Brent dipped by 11 cents to reach USD44.85/b. Crude prices have remained tightly rangebound since late June.
"Oil prices are stuck in end-of-summer mode as the global economic recovery shows signs of slowing," said Edward Moya, senior market analyst with OANDA. "China's recovery is uneven, and the US outlook is dwindling as widespread joblessness persists and an ineffective Congress is failing to deliver much needed aid to the economy."
A deadlocked US Congress adjourned this week until Sept. 8 without approving a new economic stimulus package as planned.
On Aug. 13, the International Energy Agency lowered its estimates for world oil demand in 2020 and 2021, along with its estimate of the "call" on OPEC crude, due to a slower-than-expected recovery for mobility and aviation. The IEA lowered its 2020 world oil demand estimate by 140,000 b/d compared with its previous forecast to 91.95 million b/d. This would put demand 8.1 million b/d below 2019 levels.
North American jet fuel demand remained about 40% below pre-pandemic levels, and US air carrier American Airlines announced this week it was canceling services to more US cities.
But the IEA also cited reduced road transportation fuel demand estimates, particularly for gasoline, on an upswing in worldwide novel coronavirus cases.
"Resurgences of the coronavirus will likely thwart the travel plans for many individuals until a vaccine is readily available," Moya added.
As for products, NYMEX September RBOB rose by 0.98 cent to US1.2446/gal while September ULSD fell 0.14 cent to USD1.2367/gal.
There also is the issue of hundreds of millions of barrels of crude and fuel sitting in tankers that were essentially converted to offshore storage facilities. The volume of crude and refined products being stored on tankers peaked June 30 at around 380 million barrels, according to S&P Global Platts Analytics. Most of those volumes are expected to be unloaded by the end of the year, tanker companies said this week during earnings calls.
"When the dust of positivity subsides, the market always sees what lays behind. And a grim demand recovery outlook is a clear background now on a global level," said Rystad Energy oil markets analyst Paola Rodriguez-Masiu. "Under the current supply-demand trends, we see prices unable to record further sustainable gains for a few months – until supply deficits return during the last quarter of the year."
The US Energy Information Administration provided some bullish data this week that showed crude stockpiles continued to wane and US production volumes were weaker than expected.
US crude output fell from an all-time high of nearly 13 million b/d before the pandemic to a May average of just 10 million b/d. The EIA most recently estimated US production averaged 10.7 million b/d in the week ended Aug. 7.
However, Rystad said Aug. 14 that most US onshore operators will restore nearly all shut-in oil volumes by the end of September, with only a handful maintaining some level of curtailment for the rest of the year, according to an analysis of 25 public producers' second-quarter 2020 earnings statements.
Those 25 producers shut in nearly 775,000 b/d of oil in April and May, but that less than 75,000 b/d will remain offline by the end of August. And nearly all of those last barrels will be returned in September.
The bigger losses for US production, though, will come from the natural decline rates of shale wells as greatly reduced new drilling will fail to keep up with the so-called "treadmill" of activity needed to keep pace with the faster-depleting shale wells, said Colton Bean, energy analyst with Tudor, Pickering, Holt & Co.
The US oil and gas drilling rig count was relatively stable at 288 for the week ended Aug. 12, said rig count provider Enverus. But that was still steeply below the more than 900 rigs in service a year ago.
"We're only just starting to see some completions crews come back to help stem the tide," Bean said.
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.