China's Unipec fights uphill battle to contain Middle East crude prices

The production cuts by OPEC+ may aim to keep crude prices high enough to satisfy the exporter group, but they are also starting to drive some unusual dynamics in the broader oil market, said Hydrocarbonprocessing.

An example is the trade in physical cargoes from the Middle East where Unipec, the trading arm of top Chinese refiner Sinopec, has been selling heavily this month. A total of 64 cargoes, the bulk of which are Omani crude, have been traded so far in June, according to data compiled by Refinitiv Oil Research.

This is a large number by historical standards and Unipec has been the seller in about two-thirds of the cargoes traded. It appears that Unipec is trying through its aggressive selling to influence the regional Oman/Dubai regional price benchmark, most likely to keep it anchored around USD75 a barrel.

The Oman/Dubai benchmark is used by Saudi Aramco as a basis for setting its monthly official selling prices (OSPs) for Asian refiners, which buy about two-thirds of the cargoes from the world's largest crude exporter. In effect what Unipec appears to be trying to do is limit the price increase in Middle East crudes, which have become more expensive relative to grades from the Atlantic Basin in the wake of the additional cuts to output announced by OPEC+ in early April.

The Saudi decision to voluntarily cut another 1 million barrels per day (bpd) of production for July also helped drive the price of Middle East grades higher relative to crude from producers in Africa and the Americas. Unipec would no doubt like to see the Saudis lower their OSPs for August-loading cargoes, after the unexpected increase in OSPs for shipments in July.

Aramco raised the OSP for its benchmark Arab Light grade for refiners in Asia by 45 cents a barrel to a premium of USD3.00 over Oman/Dubai quotes, the highest in six months. The hike surprised refiners, who had tipped in a survey ahead of the June 5 announcement that Aramco would cut the OSP for Arab Light by more than USD1 a barrel.

We remind, Russia's energy ministry said it sees no shortage of gasoline in the domestic market, with companies having cut their exports and increased production after gradually completing planned maintenance work. The ministry also said some refineries have not yet completed repairs, and oil companies are following government recommendations to systematically reduce exports. As a result, in June, gasoline exports fell 30% from May. The ministry continues to recommend that companies adhere to the policy to curb exports.

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Oil prices steadied on Thursday, a day after rising sharply on a bigger-than-expected fall in U.S. inventories, as attention shifted back to rising interest rates denting global economic growth, said Reuters.

Brent crude futures was up 10 cents, or 0.1%, to USD74.13 a barrel by 1032 GMT. U.S. West Texas Intermediate (WTI) crude futures rose 11 cents, or 0.2%, to USD69.67 a barrel.

Both benchmarks gained about 3% on Wednesday after the U.S. Energy Information Administration (EIA) said crude inventories dropped by 9.6 million barrels in the week ended June 23, far exceeding the 1.8-million barrel draw analysts had forecast in a Reuters poll.

"The jury is still out on whether the second part of 2023 will bring with it the long-anticipated decline in inventories. Nonetheless, the impact that stocks have on oil prices was on display yesterday on a smaller scale," PVM Oil analyst Tamas Varga said.

Concerns about the impact that rising interest rates will have on economic growth came back to the fore, however, halting the rally. Leaders of the world's top central banks reaffirmed on Wednesday that they think further policy tightening will be needed to tame stubbornly high inflation but still believe they can achieve that without triggering outright recessions.

U.S. Federal Reserve Chair Jerome Powell did not rule out further hikes at the central bank's next meeting, while European Central Bank President Christine Lagarde cemented expectations for a ninth consecutive rise in euro zone rates in July.

Adding to pressure, annual profits at industrial firms in China, the world's second-biggest oil consumer, extended a double-digit decline in the first five months as softening demand squeezed margins. "The lack of prospects for fuel demand growth has limited the gain in oil prices, even with supply curbs by oil producers," said Tetsu Emori, CEO of Emori Fund Management Inc.

Facing falling prices, Saudi Arabia this month pledged to sharply cut its output in July, adding to a broader OPEC+ deal to limit supply into 2024. Brent's six-month backwardation reached its lowest since December, but still indicated higher demand for immediate delivery.

We remind, Russia's energy ministry said it sees no shortage of gasoline in the domestic market, with companies having cut their exports and increased production after gradually completing planned maintenance work. The ministry also said some refineries have not yet completed repairs, and oil companies are following government recommendations to systematically reduce exports. As a result, in June, gasoline exports fell 30% from May. The ministry continues to recommend that companies adhere to the policy to curb exports.

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Envision Plastics is to add a processing line for recycling high-density polyethylene (HDPE) and polypropylene (PP) at its Reidsville facility in North Carolina, said Recyclingtoday.

According to the company, the additional line would increase its capacity to produce recycled HDPE by 50%. Envision’s current combined capacity for recycled HDPE and PP stands at 55m lbs/year (25,000 tonnes/year).

Construction work on the second line is to end by 2023 and start-up is expected in “early 2024”, the company said. The second line is expected to add between 25m-30m lbs/year of capacity.

The company did not disclose capital expenditure (capex) figures. Envision’s recycled HDPE is commercialised with the branded name EcoPrime and has been authorised as food-grade by the US’s Food and Drug Administration (FDA).

The company also produces recycled HDPE at another facility in Chino, California. Envision is a subsidiary of Atlanta-, Georgia-headquartered Altium Packaging.

We remind, LyondellBasell Industries N.V. (Rotterdam, the Netherlands) and AFA Nord, a leading recycler of agricultural film, have agreed to create a 50:50 joint venture (JV) that intends to recycle post commercial flexible secondary packaging waste.

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The U.S. Department of Agriculture will spend USD450 MM to expand the production and availability of transportation fuels that are blended with higher volumes of biofuels, the agency said on Monday, said Hydrocarbonprocessing.

The Biden administration sees the expanded use of lower-emission biofuels as critical to decarbonizing the transportation sector. The Environmental Protection Agency last week announced the highest-ever targets for a federal program that requires oil refiners to blend biofuels into the nation's fuel mix, though the targets were lower than the ethanol industry had expected.

"No administration has been more supportive of the biofuel industry than the Biden-Harris administration," Agriculture Secretary Tom Vilsack told reporters on a conference call. The money, which comes from the Inflation Reduction Act, will go to the USDA's Higher Blends Infrastructure Incentive Program (HBIIP), a cost-share program for fuel facilities to build and retrofit infrastructure that supports biofuel blending and distribution.

The agency also announced the recipients of USD25 MM in grants from a previous HBIIP funding round. Senators Tina Smith and Amy Klobuchar of Minnesota, a key biofuel state, joined Vilsack on the call and said the investment will create new jobs and increase national security.

"We don’t want to be dependent on other countries when it comes to energy," Klobuchar said. Corn-derived ethanol, the most commonly used biofuel, can cut greenhouse gas emissions by as much as 52% over gasoline, according to the Renewable Fuels Association, a trade group.

Some academics and environmental groups have challenged that figure, arguing that biofuel use actually increases emissions due to the carbon released when farmers till land for crops.

It was reported earlier, European Union lawmakers plan to accept changes made by countries last week to the bloc's renewable energy law, to give assurances to France and others on potentially exempting ammonia plants. EU countries on Friday agreed late changes to the law, adding an amendment that said some ammonia plants would struggle to switch to renewable fuels, and a pledge from the European Commission to consider exempting them from renewable targets.

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India's chemical maker KLJ Group has incorporated a 100,000 tonnes/year phthalic anhydride (PA) unit at the Jhagadia complex, marking backward integration that will enable the company to utilise approximately 70-75% of the material produced for captive consumption, said Indianchemicalnews.

The plasticizers and PA production facility (BIS Certified) at the Jhagadia Industrial Estate, Bharuch, Gujarat, is an investment of approximately Indian rupees (Rs) 12bn (USD145m).

The facility has a production capacity of 300,000 tonnes of phthalate plasticizers, 100,000 tonnes of PA, 3,500 tonnes of maleic anhydride (MA) and 700 tonnes of benzoic acid annually, the company said in a statement.

We remind, KLJ Plasticizers (KLJ) in 2021 started cjstrustion a new 100,000 tonne/year phthalic anhydride (PA) capacity at Jhagadia in western Gujarat state by 2023. This is part a planned greenfield integrated phthalate plasticizers and PA complex at the site, on which the company is investing about Indian rupees (Rs) 7bn (USD96m). The initial capacity for phthalate plasticizers would be 250,000 tonnes/year, which is also expected to commence operations by 2023.

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