Crude oil futures gain on US inventory draw, shale supply disruption

MOSCOW (MRC) --The rally in crude oil futures prices gained momentum during midmorning trade in Asia Feb. 18, drawing strength from a large estimated draw in US crude inventory reported by the American Petroleum Institute for the week ended Feb. 12, and ongoing supply disruptions in US shale production due to freezing temperatures, reported S&P Global.

At 11:04 am Singapore time (0304 GMT), the ICE April Brent contract was up USD1.12/b (1.74%) from the Feb. 17 settle at USD65.46/b while the NYMEX March light sweet crude contract was up 88 cents/b (1.44%) at USD62.03/b.

API's weekly crude oil inventory report estimated a 5.8 million barrel draw in the week ended Feb. 12, higher than analysts' expectations, contributed to the bullish sentiment in the market.

Although the report also estimated a build in gasoline inventories of 3.9 million barrels over the same period, it was still considered positive overall for prices by market participants.

Production disruptions in the US are turning out to be more severe than initially expected by analysts, further fueling the upward movement in the market.

"Extreme weather has likely shed output by 3.5 million barrels a day, a significant amount that propelled a surge in oil prices," told Margaret Yang, DailyFX strategist, to S&P Global Platts on Feb. 18.

Analysts at ANZ said in a Feb. 18 note that there are growing fears the extreme weather will last longer than the few days originally thought, with another storm forecast to hit eastern and central US later in the week started Feb. 14.

The disruptions in oil production have been met with lower demand for crude oil, balancing the supply-demand equation to some extent.

"It is estimated that around 3.6 million b/d of refining capacity has been idled, and for now at least, crude oil production losses appear to exceed the fall in refinery operating rates," said analysts at ING Economics in a Feb. 18 note.

Nevertheless, analysts are keeping in mind the temporary nature of the weather disruption, and focusing on other fundamental factors of support such as the global recovery of energy demand, as well as production outlook by OPEC+, to frame their overall view on the market.

Ahead of the OPEC+ meeting on March 4 to discuss production quotas for the alliance, Saudi Arabia's Energy Minister warned against complacency in the response against the coronavirus, and said the level of uncertainty is quite high and warrants extreme caution, which may have also rallied market sentiment.

"A warning against complacency by Saudi's energy minister may serve to boost oil prices further as the oil cartel may remain vigilant against future uncertainties and may hold back tapering should economic recovery derails from the projected path," said Yang.

The risk of production cuts being rolled back remains amid strong oil prices, as some producers will likely push for a more aggressive easing in cuts, said analysts at ING Economics. Given the recent comments from the Saudi Arabian Energy Minister, it seems like they would support a more gradual increase in production, the analysts added.

Market participants will look to the weekly inventory reports by the US Energy Information Administration, due later Feb. 18, for fresh pricing cues.

As MRC informed previously, oil producers face an unprecedented challenge to balance supply and demand as factors including the pace and response to COVID-19 vaccines cloud the outlook, according to an official with International Energy Agency's (IEA) statement.

We remind that the COVID-19 outbreak has led to an unprecedented decline in demand affecting all sections of the Russian economy, which has impacted the demand for petrochemicals in the short-term. However, the pandemic triggered an increase in the demand for polymers in food packaging, and cleaning and hygiene products, according to GlobalData, a leading data and analytics company. With Russian petrochemical companies having the advantage of access to low-cost feedstock, and proximity to demand-rich Asian (primarily China) and European markets for the supply of petrochemical products, these companies appear to be well-positioned to derive full benefits from an improving market environment and global economy post-COVID-19, says GlobalData.

We also remind that in December 2020, Sibur, Gazprom Neft, and Uzbekneftegaz agreed to cooperate on potential investments in Uzbekistan including a major expansion of Uzbekneftegaz’s existing Shurtan Gas Chemical Complex (SGCC) and the proposed construction of a new gas chemicals facility. The signed cooperation agreement for the projects includes “the creation of a gas chemical complex using methanol-to-olefins (MTO) technology, and the expansion of the production capacity of the Shurtan Gas Chemical Complex”.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,220,640 tonnes in 2020, up by 2% year on year. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, polypropylene (PP) shipments to the Russian market reached 1 240,000 tonnes in 2020 (calculated using the formula: production, minus exports, plus imports, excluding producers' inventories as of 1 January, 2020). Supply of exclusively PP random copolymer increased.
MRC

MOSCOW (MRC) -- Celanese has declared force majeure on its products in the Americas and EMEA region due to the severe winter weather that has heavily curtailed US petrochemicals and refinery production and operations on the US Gulf Coast, reported Chemweek.

As a result of the extreme weather’s impact on Celanese’s operations and “the unplanned shutdowns and force majeure declarations of many of its suppliers and service providers in the Texas Gulf Coast,” the company says it has declared force majeure on the following products: acetic acid, vinyl acetate monomer, ethyl acetate, acetic anhydride, methyl acetate, vinyl and acrylic emulsions, redispersible powders, ethylene vinyl acetate, dimethylamine, trimethylamine, methyl isobutyl carbinol, methyl isobutyl ketone, and paraformaldehyde.

Sustained temperatures below freezing at Celanese’s operating sites and those of its suppliers and logistics partners “have resulted in the inability of Celanese sites to receive natural gas, electricity, industrial gas, potable and firefighting water, and other raw materials necessary to safely and reliably operate the plants,” it says. “Without access to such utilities, Celanese has been forced to shut down its impacted production facilities until they can be operated safely and consistently.” Due to the shutdowns, Celanese says it is “forced to curtail its western hemisphere production” of the listed products and declare force majeure under its sales contracts.

The company says it will continue to assess the regional and global impact of the force majeure, but that “given that this is a rapidly developing situation, Celanese cannot provide any specific details or timing of the full impact to all customers.” Account managers will communicate with customers to discuss allocation volumes as soon as possible, it says, with Celanese to provide notice of when production will resume “as we continue to assess the effect of the weather on our production facilities and infrastructure, as well as those of our suppliers and logistics providers.”

About 70% or more of US light olefins capacity had been shut down or was running at reduced rates due to the impact of Winter Storm Uri, mainly on facilities in Texas and Louisiana. Aromatics have also been hit hard, with over 70% of US benzene capacity, 76% of toluene capacity, and 83% of mixed xylenes capacity shut down or cut back.

As MRC informed previously, in October, 2020, Celanese (Dallas, Texas) announced plans to add a 15,000-metric tons/year line for the production of GUR ultra-high molecular weight polyethylene (UHMWPE) at its facility in Bishop, Texas. Startup is expected by the beginning of 2022.

According to MRC's DataScope report, November EVA imports to Russia rose by 6,67% year on year to 3,650 tonnes from 3,420 tonnes a year earlier, and overall imports of this grade of ethylene copolymer into the Russian Federation dropped in January-November 2020 by 3,44% year on year to 34,680 tonnes (35,920 tonnes a year earlier).

Celanese Corporation is a global technology leader in the production of differentiated chemistry solutions and specialty materials used in most major industries and consumer applications. Based in Dallas, Celanese employs approximately 7,700 employees worldwide and had 2019 net sales of USD6.3 billion.
MRC

MOSCOW (MRC) -- Oil climbed more than 1% on Wednesday as frigid Texas temperatures curtailed production in the largest US crude producing state, with the unusual cold weather expected to hamper output for days or even weeks, reported Reuters.

Brent crude gained 72 cents, or 1.1%, to USD64.07 a barrel by 1:23 p.m. EST (1823 GMT) while U.S. West Texas Intermediate (WTI) crude rose USD0.73, or 1.2%, to USD60.78/bbl.

Oil has been supported by OPEC+ supply curbs, Saudi Arabia's additional cuts and hopes of a demand rebound due to COVID-19 vaccinations.

Historic cold weather since the weekend in Texas, which supplies the bulk of US crude and is part of the main US refining hub, has propelled prices even higher.

"This has just sent us to the next level," said Bob Yawger, director of energy futures at Mizuho in New York. "Crude oil WTI will probably max out somewhere pretty close to USD65.65, refinery utilization rate will probably slide to somewhere around 76%," Yawger said.

The US deep freeze should disrupt production for several days if not weeks, industry experts said, as wellheads have frozen over and pipelines have shut.

At least a fifth of US refining output has been knocked offline, which is hampering demand for crude at the same time production is down, said John Kilduff, partner at Again Capital in New York.

"There's a bit of a push pull happening because even though the supplies are shut in, the refiners are also down so there's not much of a call for it," Kilduff said.

Brent and WTI rose more than USD1 during the session, hitting their highest level since January 2020. Prices pared gains after the Wall Street Journal reported that Saudi Arabia was expected to announce plans to raise output when OPEC and allied oil producers meet next month.

But Saudi Arabian Energy Minister Prince Abdulaziz bin Salman said it was too early to declare victory against the COVID-19 virus and that oil producers must remain "extremely cautious".

The stronger price environment has put more attention on OPEC+, which groups OPEC, Russia and allied producers. It meets to set policy on March 4.

OPEC+ sources told Reuters that the group's producers are likely to ease curbs on supply after April given a recovery in prices.

As MRC informed previously, as of the evening of Tuesday, 16 February, IHS Markit had confirmed the shutdown of at least 61% of US ethylene capacity, 59% of US chemical- and polymer-grade propylene (CGP, PGP) capacity, and 22% of US fluid catalytic cracking (FCC) capacity. Many plants that remained online were running at reduced capacity.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,220,640 tonnes in 2020, up by 2% year on year. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, polypropylene (PP) shipments to the Russian market reached 1 240,000 tonnes in 2020 (calculated using the formula: production, minus exports, plus imports, excluding producers' inventories as of 1 January, 2020). Supply of exclusively PP random copolymer increased.
MRC

MOSCOW (MRC) -- Marathon Petroleum Corp plans shut down the gasoline-producing fluidic catalytic cracker 3 (FCC 3) at its 585,000 barrel-per-day (bpd) Galveston Bay Refinery in Texas City, Texas, in mid-February for a planned overhaul, reported Reuters with reference to sources familiar with plant operations.

The 140,000-bpd FCC 3, 31,500-bpd alkylation unit 3 (Alky 3) and 75,000-bpd Ultraformer 3 (UU 3), along with a hydrotreater, was shut for the overhaul, scheduled to finish by the end of March, the sources said.

Marathon spokesman Jamal Kheiry declined to discuss operations at the refinery.

FCCs use a fine powder catalyst to convert gas oil into unfinished gasoline.

Alkylation units convert low-octane byproducts from FCCs into components that boost octane in mid and premium gasoline grades.

The Ultraformer is a reformer that through a different process also converts refining byproducts into octane-boosting components added to gasoline.

As MRC informed earlier, most units were shut on Sunday night and Monday morning at Marathon Petroleum Corp's 585,000 barrel-per-day Galveston Bay Refinery in Texas City, Texas, as temperatures plunged due to a Arctic cold front reaching the Gulf Coast.

Ethylene and propylene are feedstocks for producing polyethylene (PE) and polypropylene (PP).

According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 2,220,640 tonnes in 2020, up by 2% year on year. Only shipments of low density polyethylene (LDPE) and high density polyethylene (HDPE) increased. At the same time, polypropylene (PP) shipments to the Russian market reached 1 240,000 tonnes in 2020 (calculated using the formula: production, minus exports, plus imports, excluding producers' inventories as of 1 January, 2020). Supply of exclusively PP random copolymer increased.
MRC

MOSCOW (MRC) -- Axalta has reported fourth-quarter net income up 67.1% year-on-year (YOY), to USD69.7 million, on net sales down 2.2%, to USD1.07 billion, said Chemweek.

Adjusted earnings totaled 58 cents/share, up 38.1% YOY and well ahead of analysts’ consensus estimate of 37 cents/share, as reported by Refinitiv (New York, New York). Volumes declined 3.8% YOY, and average price and product mix was down 0.2%. Lower YOY volumes were mostly the result of COVID-19-related macroeconomic impacts, with the automotive refinish coatings market hardest hit, Axalta says.

The company’s results “included tailwinds from rapidly improving demand across many industrial coatings segments, as well as benefits from the cost actions taken during 2020 to help offset pandemic volume impacts,” says Robert Bryant, president and CEO of Robert Bryant. “During the fourth quarter, Axalta saw evidence of ongoing demand recovery across most businesses and regions, while ongoing benefits from cost actions ahead of earlier expectations helped to deliver strong results for the quarter."

Performance coatings segment net sales were down 3.5% YOY, to USD703.9 million, while segment adjusted EBIT increased 9.7%, to USD129.5 million. Volumes fell 5.8% YOY, with declines in automotive refinish partly offset by higher industrial volumes. Average price and product mix was down 0.3% YOY.

Transportation coatings segment net sales increased 0.5% YOY, to $370.6 million, while segment adjusted EBIT nearly doubled, to USD47.9 million from USD25.6 million. Volumes were up 0.3% YOY, with higher global automotive production offsetting declines in light-truck production. Price and product mix effects were neutral, Axalta says.

As per MRC, Axalta said that it will realign its business structure to fold most organizational functions into its two global business units, transportation coatings and performance coatings.

As MRC reported earlier, in July 2017, Axalta Coating Systems completed its previously announced acquisition of the Spencer Coatings Group (UK), a leading manufacturer of high performance industrial coatings for heavy-duty equipment, general industrial, oil and gas, and glass coatings segments.

We remind that Russia's output of chemical products rose in November 2020 by 9.5% year on year. At the same time, production of basic chemicals increased in the first eleven months of 2020 by 6.6% year on year, according to Rosstat's data. According to the Federal State Statistics Service of the Russian Federation, polymers in primary form accounted for the greatest increase in the January-November 2020 output. November production of polymers in primary form rose to 896,000 tonnes from 852,000 tonnes in October. Overall output of polymers in primary form totalled 9,240,000 tonnes over the stated period, up by 17.1% year on year.

MRC