MOSCOW (MRC) -- Crude oil futures remained on a downward trajectory during mid-morning trade in Asia May 19, as the prospects of the Joint Comprehensive Plan of Action nuclear deal weighed on the market, while the American Petroleum Institute's report of an unexpected crude inventory build and concerns over the progress of the pandemic in Asia also souring sentiment, reported S&P Global.
At 10:52 am Singapore time (0252 GMT), the ICE Brent July contract was down 78 cents/b (1.14%) from the May 18 settle at USD67.93/b, while the June NYMEX light sweet crude contract was down 49 cents/b (0.75%) at USD65/b.
Overnight prices had taken a significant hit after media reports said that Russia's ambassador to the International Atomic Energy Agency, Mikhail Ulyanov, stated that the two sides had made "significant progress" towards a deal and that an "important announcement" will be made on May 19. Prices then clawed back some of the losses overnight after Ulyanov clarified that, while significant progress has been made, the negotiators needed more time and effort to address some remaining unresolved issues.
This morning's oil price trajectory, however, followed the broader downward movement seen overnight as the market remained cautious. The restoration of the JCPOA could lead to Iran returning to pre-sanctions oil production of about 3.9 million b/d next year, according to analysts.
Iran, anticipating a deal, has already been ramping up oil production, with total output reaching 2.43 million b/d in April, up 130,000 b/d from March, and the highest since May 2019. Much of the oil produced by Iran has gone to China.
The threat of increased supply from Iran comes amid uncertainties over oil demand, as the pandemic continues to devastate Asia. While COVID-19 infections in India are seen to be gradually declining after hitting a peak on May 6, Singapore, Thailand and Malaysia in Southeast Asia as well as Japan and Taiwan in North Asia continue to grapple with elevated infection numbers. These countries have renewed, or re-imposed, mobility restrictions in order to curb the spread of the virus.
In inventory news, the API data showed US crude inventories rising unexpectedly by 620,000 barrels in the week ended May 14. US gasoline and distillate inventories fell 2.837 million barrels and 2.581 million barrels, respectively, in the same period.
As MRC informed earlier, 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 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 the main feedstocks for the production of polyethylene (PE) and polypropylene (PP), respectively.
According to MRC's ScanPlast report, Russia's estimated PE consumption totalled 576,270 tonnes in the first three month of 2021, up by 4% year on year. Low density polyethylene (LDPE) and high density polyethylene (HDPE) shipments increased. At the same time, PP shipments to the Russian market totalled 410,890 tonnes in January-March 2021, up by 56% year on year. Supply of homopolymer PP and PP block copolymers increased.