MOSCOW (MRC) -- Traders have accelerated crude oil sales from floating storage in December to meet higher demand in Asia as the region’s refineries throttled up for peak winter consumption, reported Reuters with reference to trade sources and analysts' statement.
The drop in excess global stored oil and a sudden decision by world’s top exporter Saudi Arabia for extra output cuts in the next two months are expected to keep supplies snug and support prices.
“Oil prices are up, and backwardation has widened in expectation of a tighter crude market,” said Serena Huang, Asia lead analyst at data analytics firm Vortexa.
“We could expect to see traders accelerating the sell off of physical barrels that they are holding in storage.”
The rollout of COVID-19 vaccines has also lifted hopes for fuel demand recovery in 2021 and flipped Brent’s market structure into backwardation, reducing incentives for traders to store oil. Backwardation refers to higher prompt prices versus those in future months.
Global floating storage drew by the most in December last year with the average monthly volume down by 25.8 million barrels versus November, data from analytics firm Vortexa showed.
Floating storage levels fell further at the start of 2021 to about 78 million barrels, the lowest since April when the COVID-19 pandemic ravaged fuel demand, the data showed.
Asia’s major buyers, India, China and Japan, imported a high volume of crude in December, data on Refinitiv Eikon showed, as refiners replenish stockpiles while their overall refining output has returned to or even exceeded pre-COVID-19 levels.
“A lot has been sold from storage. Some traders have no floating cargoes left already,” said a trader with an Asia refinery.
Asia, which accounts for more than 60% of global crude floating storage, had 60.9 million barrels at the end of December, down 37% from October, according to Vortexa.
Data intelligence firm Kpler said Asia’s crude in floating storage was about 64 million barrels last month, which compares with 149 million barrels in late August, but still far from average levels of 20 million barrels seen in 2018-2019.
Vortexa’s Huang said floating crude storage was unlikely to return to 2020 highs, as a bumpy oil demand recovery is expected to gather pace this year, which would lift tanker demand and support freight rates, a key cost component for floating storage.
Homayoun Falakshahi, oil and gas analyst at Kpler, said: “The current forward curve isn’t incentivising storage, so traders will want to release stored crude.”
“Key things to watch will be how quick vaccines are diffused and the length of current lockdowns.”
As MRC wrote previously, China's crude oil throughput in November 2020 rose 3.2% on year, setting a record high on a daily basis, as a huge private refiner started trials of a new refining unit and state-owned refineries raised processing rates to meet annual targets. The country processed 58.35 million tonnes of crude oil in November, equivalent to 14.2 MMbpd, according to data from the National Bureau of Statistics (NBS) on 15 December, 2020. That exceeded the October record of 14.09 MMbpd. January-November throughput was 614.41 MMt, or 13.39 MMbpd, up 3.1% from the same period in 2019. Zhejiang Petrochemical Corp in early November started a 200,000 bpd crude unit, in addition to its existing 400,000 bpd refining capacity in eastern China.
We remin that in January 2020, Zhejiang Petroleum & Chemical Co Ltd, one of two new major refineries built in China in 2019, started up the remaining units in the first phase of its refinery and petrochemical complex. The complex is situated in east China’s Zhoushan city. The company, 51% owned by private chemical group Zhejiang Rongsheng Holdings, said it ha started test production at ethylene, aromatics and other downstream facilities, without giving further details.
Zhejiang Petrochemical started the first 200,000 barrels per day (bpd) crude processing unit in late May, 2019, following on from the start of a 400,000-bpd refinery owned by another private chemical major Hengli Petrochemical. The newly started units at Zhejiang Petrochemical should include a second 200,000-bpd crude unit, a 1.2 million tonnes per year (tpy) ethylene unit and a 2 million tpy paraxylene unit, according to several industry sources with knowledge of the plant’s operations.
Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).
According to MRC's DataScope report, PE imports to Russia decreased in January-November 2020 by 17% year on year and reached 569,900 tonnes. High density polyethylene (HDPE) accounted for the greatest reduction in imports. At the same time, PP imports into Russia increased by 21% year on year to about 202,000 tonnes in the first eleven months of 2020. Propylene homopolymer (homopolymer PP) accounted for the main increase in imports.