MOSCOW (MRC) -- Crude oil tanks at the Cushing, Oklahoma storage hub are more depleted than they have been in the last three years, and prices of further dated oil contracts suggest they will stay lower for months, said Reuters.
U.S. demand for crude among refiners making gasoline and diesel has surged as the economy has recovered from the worst of the pandemic. Demand across the globe means other countries have looked to the United States for crude barrels, also boosting draws out of Cushing.
Analysts expect the draw on inventories to continue in the short-term, which could further boost U.S. crude prices that have already climbed by about 25% in the last two months. The discount on U.S. crude futures to the international Brent benchmark should stay narrow. "Storage at Cushing alone has the potential to really rally the market to the moon," said Bob Yawger, director of energy futures at Mizuho.
Cushing stockpiles have dropped to 31.2 MM barrels, the lowest since October 2018, the Energy Information Administration said last week, or about half of where inventories were at this time a yr ago. Inventories have fallen because of a ramp-up in U.S. demand, which has encouraged domestic refiners to keep crude at home to provide fuel such as gasoline and distillates to U.S. consumers, said Reid I'Anson, senior commodity analyst at Kpler.
In addition, U.S. production has been slow to recover from declines seen in 2020. At the end of 2019, the nation was producing roughly 13 MM barrels of oil per day (bpd), but in recent weeks has been less than 11.5 MMbpd. At the same time, product supplied by refineries - a proxy for demand - is about just 1% below pre-pandemic peaks.
As a result, the spread between U.S. crude and international benchmark Brent, has collapsed. The spread between U.S. crude delivered to Cushing and Brent narrowed to roughly USD1.09 a barrel this week from USD4.47 earlier this month, which had been about the widest spread since May 2020.
In an additional sign of high short-term demand for U.S. crude, the premium for U.S. crude delivered this December versus December 2022 reached a high this week of USD12.48 per barrel, most since at least 2014, according to Refinitiv Eikon data. In the next three months, Rystad Energy expects refinery runs in the United States to increase by 500,000 to 600,000 bpd. This would outpace production gains of 300,000-400,000 bpd, and keep the WTI/Brent spread narrow.
"Only if OPEC (the Organization of the Petroleum Exporting Countries) intervenes with more supply of crude or if COVID rears its ugly head again, curbing demand, this high volatility will come off," said Mukesh Sahdev, senior vice president and head of downstream at Rystad Energy.
As per MRC, crude oil futures edged higher in mid-morning trade in Asia Nov. 8, extending gains from the previous session amid a broad risk-on sentiment in financial markets following a strong US jobs report and news of Pfizer's antiviral drug. At 10:10 am Singapore time (0210 GMT), the ICE January Brent futures contract was up USD1.03/b (1.24%) from the previous close at USD83.75/b, while the NYMEX December light sweet crude contract rose USD1.02/b (1.26%) at USD82.29/b. Both benchmarks had settled higher by 2.7%-3.1% in the last session Nov. 5.
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 1,868,160 tonnes in the first nine months of 2021, up by 18% year on year. Shipments of all grades of ethylene polymers increased. At the same time, PP shipments to the Russian market were 1,138,510 tonnes in January-September 2021, up by 30% year on year. Supply of propylene homopolymer (homopolymer PP) and block-copolymers of propylene (PP block copolymers) increased, whereas supply of injection moulding statistical copolymers of propylene (PP random copolymers) decreased significantly.