MOSCOW (MRC) -- If they can maintain recent progress, US oil refiners should be able to bring stocks of diesel and other middle distillates close to normal levels in the first quarter of 2021, reported Reuters.
Distillate inventories were still 20% above the five-year average last week, but the surplus was down from 22% at the end of August, 27% at the end of July and 29% at the end of June.
Refining margins for distillate show tentative signs of recovery, based on futures prices for crude and ultra-low sulfur diesel delivered in March 2021, consistent with a normalization of stocks in the first quarter.
Forward margins have turned slightly higher, albeit from a very low level, for the first time since June, when there were still hopes for a rapid recovery in oil consumption after the first wave of the novel coronavirus.
To try to digest excess diesel stocks built up in the second quarter of 2020, refiners continue to restrain crude processing and configure their equipment to maximize gasoline production.
In the last four weeks, refiners have cut crude processing to almost 19% below the five-year average, while the volume of products supplied to the domestic market has been down by 13%.
Distillate production has been running 10% below the five-year average, while consumption is down by around 8% The ratio of distillate to gasoline production has remained close to multi-year lows in recent weeks.
The strategy is starting to pay off, with distillate stocks declining in four out of the last five weeks, after being basically flat over the previous two months.
If refiners can hold this course, excess inventories should be mostly absorbed over the next six months, with a resumption of more normal refining activity in the second and third quarters of 2021.
The principal risk is a severe resurgence of coronavirus or a second business cycle downturn over the northern hemisphere winter that cuts industrial diesel consumption and jet fuel demand even further.
As MRC informed earlier, global oil refiners reeling from months of lackluster demand and an abundance of inventories are cutting fuel production into the autumn because the recovery in demand from the impact of coronavirus has stalled, according to executives, refinery workers, and industry analysts. Refiners cut output by as much as 35% in spring as coronavirus lockdowns destroyed the need for travel. As lockdowns eased, refiners increased output slowly through late August. But in top fuel consumers the United States and elsewhere, refiners have been decreasing rates for the last several weeks in response to increased inventories, a sustained lack of demand, and in response to natural disasters.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's ScanPlast report, Russia's overall PE production totalled 1,712,400 tonnes in the first seven months of 2020, up by 58% year on year. Linear low density polyethylene (LLDPE) accounted for the greatest increase in the output. At the same time, overall PP production in Russia increased in January-July 2020 by 24% year on year to 1,063,700 tonne. ZapSibNeftekhim accounted for the main increase in the output.