MOSCOW (MRC) -- Oil hit an 11-month high just below USD57 a barrel on Tuesday as tighter supply and expectations of a drop in U.S. inventories offset concerns over rising coronavirus cases globally, said Reuters.
Saudi Arabia plans to cut output by an extra 1 million barrels per day (bpd) in February and March to stop inventories from building up. The latest U.S. supply reports are expected to show crude stocks fell for a fifth straight week.
Brent crude was 79 cents, or 1.4%, higher at USD56.45 a barrel by 1304 GMT and earlier hit USD56.75, the highest since last February. U.S. West Texas Intermediate (WTI) gained 89 cents, or 1.7%, to USD53.14. "Saudi Arabia in particular is ensuring through its additional voluntary production cuts that the market is undersupplied if anything," said Eugen Weinberg of Commerzbank.
The Saudi cut is part of an OPEC-led deal in which most producers will hold output steady in February. Record cuts by OPEC and its allies in 2020 helped oil recover from historic lows in April. Some analysts see further gains as likely. "We advise investors with a high risk tolerance to be long Brent or to sell its downside price risks," said Giovanni Staunovo of UBS in a report on Tuesday.
Oil also gained on the expectation of a drop in U.S. crude stockpiles. Analysts expect crude inventories to fall by 2.7 million barrels for a fifth straight week of declines. The first of this week’s two supply reports, from the American Petroleum Institute, is due at 2130 GMT.
The prospect of increased economic stimulus in the United States lent further support. President-elect Joe Biden, who takes office on Jan. 20, has promised “trillions” in extra pandemic-relief spending. Concerns about demand due to rising coronavirus cases worldwide limited gains.
Chinese authorities introduced new curbs in areas surrounding Beijing on Tuesday and Japan is to widen a state of emergency beyond Tokyo.
As MRC wrote previously, 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 a 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.