Crude rally pauses, prices slide on profit-taking as market awaits fresh drivers

MOSCOW (MRC) -- Crude oil futures were lower in mid-morning trade in Asia on Aug. 18 as investors took some profit and paused for fresh drivers after an overnight rally on improved fundamental outlook buoyed the global crude complex, reported S&P Global.

At 10:19 am Singapore time (0219 GMT), the ICE Brent October crude futures were down 17 cents/b (0.37%) from the Aug. 17 settle at USD45.20/b, while NYMEX September light sweet crude contract was down by 19 cents/b (0.44%) at USD42.70/b.

"This morning's (Aug. 18) activity looks like some profit-taking but mostly a pause to reassess the tug-of-war between the financials and the fundamentals," Vandana Hari, Founder and CEO of oil consultancy firm, Vanda Insights told Platts on Aug. 18.

"The dollar's continuing slide is the biggest support for crude's ascent. The growing unease that global oil demand recovery is plateauing is a counter-force, but may need to be validated by data to become a full-blown bearish pull," she added.

Oil prices moved higher overnight on strong support from ramped-up China crude purchases, a faster-than-expected US economic recovery and liquidity injections from China's central bank, or the People's Bank of China.

"Still, oil's rally could remain capped by recent surges in coronavirus cases around the world, which never stray far from the primary demand narrative," Stephen Innes, chief global markets strategist at AxiCorp, said in a note Aug. 18.

Global COVID-19 case counts continued to rise steadily amid a resurgence of infections worldwide with total cases at 21,809,170, while total deaths reached 772,479, latest data from John Hopkins University showed.

Separately, OPEC+ is expected to discuss about compensation cuts through September for members who overproduced and exceeded their output quotas from May to July during its Joint Ministerial Monitoring Committee meeting scheduled on Aug.19, S&P Global Platts reported earlier.

The coalition exceeded its quotas by 357,000 b/d from May to July according to Platts calculations and the overall cut compliance was pegged at 95% for July, compared to 107% in June and 87% in May.

While no further changes are expected for the OPEC+ production accord which eased into 7.7 million b/d from August, a focus on compliance and compensation cuts is ultimately supportive to the global crude complex.

"This week's JMMC could prove to be a catalyst as the meeting may address continued failure to comply with past quotas by Nigeria, Iraq, and others. Still, the incentive will be to emphasize overall compliance (around ~95%) and possibly to provide more detail on the framework for the principle of compensation over the next few months by OPEC+ members who have lagged so far," Innes added.

Meanwhile, US crude inventories likely fell by 3.8 million barrels last week, on the back of soaring exports and higher refinery demand, an S&P Global Platts analysis showed Aug. 17. This would mark the fourth consecutive week of decline, and the longest stretch of weekly draws since September 2019.

Market participants will look to fresh cues from the inventory reports by the American Petroleum Institute and the Energy Information Administration on Aug. 18 and 19 respectively.

As MRC wrote previously, China’s massive build-up of crude oil inventories this year slowed somewhat in July, but remained elevated by historical standards as imports stayed near record levels.

We remind that Chinese polyethylene (PE) producers have been running plants at around 80-90%, and inventories were heard around 640,000 mt, stable in the first week of August.

We also remind that four large new crackers are poised to start operations in China in the next 3-6 months, in a sharp expansion of the country's petrochemical cracker sector.

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.

Reduced pipeline volumes and gas processing activity hits Enterprise results

MOSCOW (MRC) -- Enterprise Products Partners' second-quarter profit slid as declines in natural gas and crude pipeline volumes and reduced activity at processing plants - due to producer shut-ins and weak NGL prices - caused revenue to plunge, reported S&P Global.

The company is cutting its combined spending on growth projects in 2021 and 2022 by a total of USD700 million from its previous expectations. It is also talking seriously with a joint venture partner about helping it fund existing build-out plans, executives said during an investor conference call in late July.

The cautious approach reflects uncertainty in the midstream sector about the future trajectory of supply and demand fundamentals amid the coronavirus pandemic, geopolitical tensions that could disrupt market flows and the November US presidential election that could lead to trade and tax policy changes.

"We're discussing some JVs with some of our largest projects, but I wouldn't say we're highly engaged with more than one," co-CEO Jim Teague said on the call. "But we are highly engaged with one."

Teague declined to elaborate.

Just 18 months ago, the operator of gathering and processing facilities, pipelines, storage and import and export terminals across oil, gas, NGLs and petrochemicals touted enthusiastically its plans to get bigger, believing that greater scale would enhance its market position and generate higher profits and investor returns.Then the coronavirus started to spread globally in January.

Enterprise still plans to get bigger - it has USD6.6 billion in projects currently in its construction queue, including in Texas an 11th NGL fractionator and a new segment of a crude pipeline that are expected to begin initial service by the end of September.

What's different now is the breadth of the growth and how much risk it is comfortable shouldering on its own, as it believes that the pace and scope of the reopening of energy markets as the virus eases in parts of the world is uncertain and may extend well into 2021.

It still expects to spend USD2.5-USD3 billion on growth capital projects this year. For 2021 and 2022, it expects growth capital investments will be reduced from previous guidance to approximately USD2.3 billion and USD1 billion, respectively.

Preferred joint venture partners, meanwhile, would ideally "bring more than money," Teague said. "They've got to bring throughput or offtake typically.".

For the April-June quarter, Enterprise reported net income attributable to limited partners of USD1.03 billion, or 47 cents/share, a 15% drop from the USD1.21 billion, or 55 cents/share, in the second quarter of 2019. Revenue in the latest quarter fell over 30% to USD5.75 billion from $8.28 billion in the year-ago period.

The company would consider a strategic acquisition if it complemented an existing business, but has not seen any opportunities over the last several months that would be compelling, executives said during the call. It is more focused on executing its existing assets, they said.

There also are no current plans to change its master limited partnership structure, amid its concerns that depending on who wins the upcoming US presidential election tax obligations and the cost of energy infrastructure could increase, executives said.

Looking ahead, Enterprise is optimistic there is a recovery on the horizon.

"I think you're going to get a price signal next year on hydrocarbons that turns some things back on," Teague said.

As MRC wrote before, Enterprise Products Partners LP (EPP), through one of its affiliates, has entered a long-term agreement with Marubeni Corp. of Japan, under which Marubeni will offtake polymer-grade propylene (PGP) produced from a second (PDH 2) plant currently under construction at EPP’s operations in Mont Belvieu, Tex., for supply to global customers. Concluded on June 16, the PGP offtake agreement is part of a long-term collaboration between EPP and Marubeni that also includes the export of liquefied ethylene, the first 25-million lb vessel of which loaded and sailed from EPP and Navigator Holdings Ltd.’s 50-50 joint venture marine terminal at Morgan’s Point, Tex., in early January, EPP and Marubeni said on June 30.

We remind that in July, 2020, Enterprise Products conducted maintenance at its propane dehydrogenation (PDH) unit in Mont Belvieu, Texas. This PDH unit has the capacity of 750,000 mt/y of propylene.

Propylene is the main feedstock for the production of polypropylene (PP).

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.

Dow to resume production at PDH unit in Freeport after maintenance

MOSCOW (MRC) -- Dow Chemical is in plans to resume operations at its propane dehydrogenation (PDH)unit in Freeport, Texas, at the en of this week after a scheduled maintenance, reported S&P Global with reference to sources.

Thus, the planned turnaround at this PDH unit with the capacity of 750,000 mt/y of propylene started on 8 July, 2020, and will last 45 days.

As MRC informed before, as part of the company’s current slate of low capital intensity, high-return incremental growth investments, Dow announced in August 2019 that it will retrofit proprietary fluidized catalytic dehydrogenation (FCDh) technology into one of its mixed-feed crackers in Plaquemine, Louisiana, to produce on-purpose propylene.

Propylene is the main feedstock for the production of polypropylene (PP).

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.

The Dow Chemical Company is an American multinational chemical corporation. Dow is a large producer of plastics, including polystyrene, polyurethane, polyethylene, polypropylene, and synthetic rubber.

BASF swings to net loss in Q2 on Wintershall Dea impairment

MOSCOW (MRC) -- In line with estimates, BASF SE recorded a second-quarter net loss of EUR878 million, or a loss of 95 cents per share, compared with a net income of EUR5.95 billion, or EUR6.48 per share, a year earlier, according to S&P Global.

The German chemical giant attributed the loss to a noncash-effective impairment of its Wintershall Dea shareholding amounting to EUR819 million due to a weaker outlook for oil and gas prices and revised reserve estimates.

Adjusted EPS fell to 25 cents from 83 cents a year ago. Second-quarter EBIT before special items plunged to EUR226 million from EUR995 million a year ago, with the chemicals and materials segments accounting for 70% of the decline.

Sales fell 12% to EUR12.68 billion as global lockdown measures to contain the coronavirus resulted in lower sales volumes, particularly in surface technologies, and materials and industrial solutions segments.

Cash flows from operating activities rose to EUR2.24 billion from EUR1.95 billion due to cash released from net working capital. Free cash flow increased to EUR1.52 billion from EUR965 million a year ago.

"Given the continued high level of uncertainty and low visibility surrounding economic developments, BASF still does not make any concrete statements on the development of sales and earnings for the full year 2020," the company said.

It added that third-quarter EBIT before special items is not expected to show a significant recovery from the prior three-month period due to lower demand in August and seasonal factors related to the agriculture business.

As MRC reported previously, BASF will increase its alkoxylate capacity in Asia Pacific, with its latest investment in Jinshan, China. The company has acquired land, buildings and assets of SPC, related to alkoxylates production, adjoining the BASF Jinshan site, in order to fulfil the growing demand from customers across Asia Pacific, especially China. With the current alkoxylate line in the Care Chemicals Jinshan plant running at full capacity, this acquisition will help double the capacity at Jinshan from end 2020.

We remind that BASF-YPC, a 50-50 joint venture of BASF and Sinopec, undertook a planned shutdown at its naphtha cracker on 30 April 2020. The company initially planned to start turnaround at the cracker on April 5, 2020. The plant remained under maintenance unitl 18 June, 2020. Located in Jiangsu, China, the cracker has an ethylene capacity of 750,000 mt/year and propylene capacity of 400,000 mt/year.

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.

BASF is the leading chemical company. It produces a wide range of chemicals, for example solvents, amines, resins, glues, electronic-grade chemicals, industrial gases, basic petrochemicals and inorganic chemicals. The most important customers for this segment are the pharmaceutical, construction, textile and automotive industries. BASF generated sales of EUR59 billion in 2019.

Klockner Pentaplast plans multimillion-dollar rPET expansion in North America

MOSCOW (MRC) -- Protective packaging maker Klockner Pentaplast Group (KP) has announced plans for a “multimillion-dollar investment” to expand its post-consumer recycled PET (rPET) extrusion capacity in North America, said Canplastics.

In an Aug. 19 statement, the company said it is still deciding on the precise location for the expansion, and will announce at a later date which of its eight North American sites is best situation for the project to serve KP’s thermoformed protein and sustainable consumer packaging customers.

"The 17,500-tonne extrusion expansion supports the increased consumer demand for curb-side recyclable options, supporting closed loop packaging, and a circular economy," KP’s statement said.

"As major brands announce robust, sustainability initiatives that includes post-consumer and recyclable packaging, KP will be positioned to service those market needs for the foreseeable future,” said KP CEO Scott Tracey. “The extra capacity will also go a long way in supporting our company’s goals for product innovations and sustainability."

Globally, this is the fourth major expansion for KP. In March, the company announced a 30 per cent capacity expansion at their Cotia, Brazil location, and in June KP broke ground at their central Virginia location that increased it pharmaceutical films capacity by 6,000 metric tonnes.

As MRC informed earlier, Russia's output of chemical products rose by 4.4% year on year in May 2020 . Thus, production of basic chemicals increased year on year by 5.4% in the first five months of 2020. According to the Federal State Statistics Service of the Russian Federation, polymers in primary form accounted for the greatest increase in the output in January-May. Production of benzene was 110,000 tonnes in May 2020, which equalled the figure a month earlier. Overall output of this product reached 615,000 tonnes over the stated period, up by 1.7% year on year.

Founded in 1965, KP has 32 plants in 18 countries and employs over 5,900 people.