Indian Refiners Resume Crude Units After Works, Seek Incremental Cargoes

May 22, 2020

Indian refiners are restarting a slew of crude units that were taken down in the past two months to coincide with demand-sapping coronavirus disease 2019 (COVID-19) lockdown measures that are being wound down leading to a rebound in local fuel consumption, according to market sources and local media.

The optimism associated with expectations for a sharp demand recovery, as seen in China, has led refiners to also announce plans to crank up crude throughput, which has translated into fresh spot crude oil buy tenders after their term barrels were reduced in line with the OPEC+ output cuts, trading sources said.

Indian Oil Corp (IOC), the country's largest refiner with processing capacity of 1.4 million b/d, said it would raise runs to 80% of capacity in May after slashing them down to a low of 45% in the first week of April.

IOC brought back online crude units at refineries in Panipat, 150,000 b/d after a near two-month maintenance and refurbishment program earlier this month, in Paradip, 160,000 b/d after about 10 days works in late April, and in Paradip, 120,000 b/d following an almost month-long turnaround that finished this week, according to the reports and a trading source.

Aside from IOC, other Indian refiners have also brought back units recently that were shut in part to upgrade processes to allow for the production of cleaner 10 ppm sulfur gasoline and diesel, which conform to new government standards that came into force from April 1.

Nayara Energy restarted a 110,000 b/d unit at Vadinar in late April after a over two-week closure, Bharat Petroleum Corp. Ltd resumed operations at its 100,000 b/d crude unit in Kochi this week following a three-week shutdown, while Mangalore Refinery & Petrochemicals Ltd also did the same after works at a 144,000 b/d unit for about a month, the report showed.

The moves come as the Indian Oil Minister said earlier this month that he expected domestic oil demand to increase to about 80% of pre-COVID-19 levels as the nation pulled back many of the lockdown levers to breathe live into its industrial and agricultural sectors.

India this week also announced that it would allow the resumption of domestic air travel from May 25 after a two-month gap that just about crushed jet fuel demand.

To meet the higher crude throughput refiners are increasingly tapping the spot market as their term allotments were crimped by compliance to the OPEC+ output cuts.

Trading sources said that Indian refiners such as the two-biggest, Reliance Industries and IOC, were picking up incremental barrels from West Africa as well as from the U.S via tenders.

IOC has already issued 2-3 buy tenders this month, they said.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com; John Koh, John.Koh@ihsmarkit.com;

--Editing by Carrie Ho, Carrie.Ho@ihsmarkit.com

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Analysis: Supply Shut-ins Flatten WTI Curve but Outlook Highly Uncertain

May 21, 2020

The forward curve of West Texas Intermediate crude futures has significantly flattened on widespread production shut-ins and recovering demand, but the unpredictable path of the coronavirus disease 2019 (COVID-19) pandemic and possible restarts at higher prices baffle analysts as to what the future WTI curve will look like.

The "supercontango" seen just a few weeks ago that signals distress for near-dated WTI crude and scarce storage is now gone, as the front-month contract has surged relative to long-dated prices. Solid draws at key U.S. crude storage at Cushing, Okla., and other major hubs worldwide also alleviated fears of a global oil tank tops.

The front-month WTI prices settled at $33.49/bbl Wednesday, almost tripled from the $12.34/bbl on April 28. During that time, the front-to-12-month WTI crude futures spreads have dramatically narrowed to around minus $3/bbl on Wednesday, down from the nearly minus $19/bbl on April 28.

Prices of long-dated oil futures are a function of the oil market's spare production capacity, Bank of America energy analysts said. The more the spare originally said spare capacity, primarily due to voluntary production curbs, the lower the long-dated price, according to the U.S. bank.

"With OPEC+ and other producers around the world aggressively curbing supply, we now face the highest levels of spare crude oil production capacity in at least two decades," BofA said in a recent note.

The furious pace of narrowing crude spreads prompted some to think the WTI market will flip to backwardation. According to BofA, backwardation has typically occurred as prices hit $55-60/bbl in the past five years. "With spare capacity so high, we now believe that backwardation could occur at $40-45/bbl," the bank said.

The WTI futures market had been mostly backwardated between October 2017 and March 2020. Backwardation describes a market where prompt prices are higher than future deliveries, usually a sign of more robust near-term demand.

Another U.S. bank Goldman Sachs said it expects tightening of crude oil inventory to further flatten the Brent forward curve without a rise in long-dated prices. For example, the current contango in the first six months of the Brent forward curve that offers positive storage play is expected to disappear soon, pointing to further curve flattening, Goldman says.

Goldman said that deep production cuts by OPEC+ and in North America combined with demand recovery will set the stage for a large oil deficit in 2021 that will lead prices well above the forward curve, taking the oil market to backwardation.

Indeed, the U.S. Federal Reserve in late April warned of "especially difficult" conditions in the energy sector, citing plunging oil prices, a sharp global petroleum demand drop and excess supply overwhelming storage capacity.

"Some participants expressed concern that low energy prices, if they were to persist, had the potential to create a wave of bankruptcies in the energy sector," the U.S. central bank said in the minutes of its April 28-29 policy meeting released on Wednesday.

IHS Markit, a provider of critical information, analytics and solutions, said Thursday U.S. producers are in the process of curtailing about 1.75 million b/d of existing production by early June due to operating cash losses, lack of demand and storage capacity. That's nearly 10% of the 2019 total output of 12.2 million b/d.

IHS Markit is the parent company of OPIS.

Market watchers have mixed views on what the WTI forward curve will look like.

They warned that any meaningful short-term rally would lead to reduced shut-ins and production recovery. In addition, the possibility of a second COVID-19 outbreak and extremely high oil inventory levels suggest any oil recovery will likely be bumpy.

Patricia Hemsworth, senior vice president of Paragon Global Markets, a New York-based introducing broker, said that currently the December 2020 WTI contract has the highest open interest for all delivery months, even higher than the front months of July and August, suggesting some participants are expecting market conditions to improve by the end of the year.

Hemsworth said a bull market for crude can be validated when the price, open interest and volume of WTI futures are all trending higher, confirming participation by new buyers instead of shorts liquidation.

John Auers, executive vice president of Dallas-based energy consultant Turner, Mason & Co., said oil market participants should be better prepared to withstand future headwinds after the shock of WTI's historic negative $37.63/bbl settlement on April 20.

"Demand growth is going to be relative consistent till the end of the year. As a result of that, maybe we don't go back to the contango," Auers said. "There will be lots of bumps on the road. There is no certainty in the future."

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Frank Tang, ftang@opisnet.com,

--Editing by Denton Cinquegrana, dcinquegrana@opisnet.com

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Spectacular China V-Shape Fuel Demand Recovery to Ease Up in Second Half

May 21, 2020

Chinese fuel demand recovery is likely to taper off in the second half of this year after a spectacular V-shaped rebound from the coronavirus disease 2019 (COVID-19), which is also taking shape in countries that have relaxed lockdown measures, according to an IHS Markit report and trading sources.

Overall oil consumption in China is forecast to contract by more than 1 million b/d in 2020 from a year ago due mainly to the drag in transport fuels while demand for petrochemical feedstocks, including naphtha and liquefied petroleum gas (LPG), are expected to post modest growth, the IHS report showed.

“When you look at oil demand over February, March and April, there was a very definite V-shape recovery, except for jet fuel. Looking into the second-half, we believe the right leg of the V will be lower than the left,” said Feng Xiaonan, IHS Markit downstream analyst in Beijing, one of the authors of the report published on May 20.

Oil demand in China has recovered to more than 90% of year ago levels by the end of April but the outlook for the rest of the year is clouded by uncertainties including rising geopolitical tensions and the course the COVID-19 pandemic will take, which ultimately depends on test, treatment and vaccine developments.

The spike in demand growth was matched by an equally impressive rebound in refinery run rates with independents raising output sharply took take advantage of local fuel floor prices that raised margins significantly, according to the report.

Refinery runs in China are expected to increase to 69.8% of capacity in May, according to preliminary estimates from IHS Markit compared with typical rates of around 77% prior to COVID-19. Operations dropped to 55% in February before recovering to 60% and 68.8% in March and April, respectively, IHS Markit data show.

However, growth in the second half is unlikely to be as spectacular, Feng said.

A slowdown in fuel exports is on the cards as many countries in the region and further away are still struggling to get back on their feet in the aftermath of COVID-19, which could impact local demand and in turn Chinese shipments overseas, she added.

raj 0521

 

Nations are unwinding strict lockdown measures to varying degrees depending on local conditions with some more cautious that others in this knife-edge balancing act of getting the economy and society back to normal versus fears of a swift second wave of infections.

Fuel demand is already picking up in major consumers such as the United States, India and Germany which have loosened social distancing rules while others including Indonesia, Malaysia and Singapore still have strict measures, market sources said.

“The immediate recovery has been spectacular in China and it seems like it would be the same in the U.S.,” one trading source said.

Chinese crude oil imports in May and even June are likely to stay at the lofty levels chalked up in April as cargoes purchased in March/April, when prices were low, make their way to the mainland, Feng said.

There are another 199 million barrels of seaborne April-loading crude oil that are still on the way to China in addition to the 172 million barrels that has already been delivered, data from IHS Markit’s Commodities At Sea (CAS) showed. A total of 214 million barrels have so far been loaded in May bound for China, the data showed.

China crude oil imports totaled 43.73 million barrels, or about 320 million barrels, in April, according to customs data.

“Imports will shore up in the second quarter ahead of a full recovery of downstream demand. We also expect the pace of stock build to ease in second half 2020 as tanks get filled up and as storage economics become less attractive with crude oil prices expected to trend higher in our base case scenario,” IHS Markit said in the report.

“As such, the curve of crude imports is likely to diverge from that of downstream demand,” it said.

The Chinese government are asking refiners to import as much as they can and as much as 30% of imports that arrived in the first four months of this year may have gone into storage, Feng said earlier, stressing that China’s oil storage capacity was underestimated by industry watchers.

Turning to each transportation fuel, in its best-case scenario gasoline demand was forecast to drop by 454,000 b/d, diesel by 228,000 b/d and jet fuel by 360,000 b/d, according to the report.

“In percentage point terms, jet fuel demand is the hardest-hit by the COVID-19 crisis,” it said, adding, “We do not expect the lifting of travel restrictions to instantly bring all demand back, as it will take time for passengers to switch back to using public transport owing to safety concerns.”

On the other hand, China’s naphtha demand is expected grow by 70,000 b/d and LPG by 20,000 b/d in 2020, the report showed.

Gain greater transparency into Asia-Pacific markets for more strategic buy and sell decisions on refinery feedstocks, LPG and gasoline with the OPIS Asia Naphtha & LPG Report. Get your free trial here

--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com;

--Editing by Carrie Ho, Carrie.Ho@ihsmarkit.com

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Ethanol Output, Demand May Have Passed COVID-19 Low Point: Panelists

May 20, 2020

The worst of the ethanol industry demand destruction caused by the coronavirus diseases 2019 (COVID-19) outbreak may be over, speakers at a University of Illinois webinar said Tuesday, echoing statements made days earlier by a leading industry trade group.

The peak of demand destruction created by the coronavirus disease 2019 (COVID-19) pandemic could be in the ethanol industry's rearview mirror, said a University of Illinois clinical assistant professor and agricultural economist, Todd Hubbs.

"When we think about where ethanol is headed, I think we may have seen the worst of it, barring some kind of rekindling of the pandemic," Hubbs said. "I think we're in a build-and-strengthen mode."

Hubbs pointed out that ethanol production has increased in recent weeks, citing recent data from the U.S. Energy Information Administration (EIA). "We saw ethanol plants shutter and reduce production, and we got down to 537,000 b/d a few weeks ago. It picked up to 617,000 b/d in last week's report. I expect it to go up again this week."

The agency on Wednesday reported that ethanol output rose by 46,000 b/d, or 7.5%, in the week ended Friday to 663,000 b/d, a six-week high. Production, however, is 38.1% below the same week of last year.

The damage that COVID-19 has caused the ethanol industry came after a particularly rough year for producers, Scott Irwin, an Illinois agricultural economist, added. Irwin said producers' average profits in 2019 were at their worst since 2012.

He said the "shutdown price" for a representative Iowa ethanol plant was around 80cts/gal. Prices briefly dipped below that in March, and nearly half of ethanol production in the U.S. was idled at some point, Irwin said.

Eric Mosbey, general manager at Illinois ethanol producer LincolnLand Agri-Energy, said his 60 million-gal/year plant has been operating at reduced rates since fuel demand plunged in March on COVID-19 lockdown restrictions across the U.S.

"We slowed -- that's how we coped with things," Mosbey said. "We slowed to try to match our production to demand, and cut costs as much as we possibly can and then see how that plays out. Now, we're starting to feel a little more stable as we start to see demand come back."

He said May will likely mark the company's production low and that he hopes demand will continue to rise through the summer. "It's going to be really interesting to watch how the ethanol industry responds throughout this recovery," he added. "Will we come right back on and blow right through those old production numbers and increase stocks again, only to crash the margin? Or will we take a more measured approach and more disciplined approach? I'm hoping for the latter."

Irwin said he believes Congress will eventually pass legislation that will provide financial assistance to the biofuels industry, but said it may not be as generous as what House Democrats proposed in a roughly $3 trillion COVID-19 economic stimulus bill that passed the chamber in a mostly party-line vote on Friday. Language in that bill would pay biofuel makers 45cts/gal for fuel they produced over the first four months of 2020. The provision has little support in the Senate, and on Wednesday Sens. Chuck Grassley, R-Iowa, and Amy Klobuchar, D-Minn., introduced a bill that would direct USDA to reimburse biofuel producers for 75% of their first-quarter feedstock costs.

The panelists' comments come after Geoff Cooper, president and CEO of the Renewable Fuels Association (RFA), an ethanol industry trade group, told reporters on Friday that "the worst may be behind us. We're beginning to see some signs of recovery as states begin to ease stay-at-home restrictions and people begin to return to public spaces and get back out on the roads."

As demand for gasoline has risen, Cooper said more ethanol plants are starting to come back online. "So it does seem that we're starting to see a light at the end of the tunnel, but make no mistake, we still have a very long way to go to climb out of the hole that COVID-19 put us in and by our last count there are still more than 60 ethanol plants that are idle today and close to 75 or 80 facilities that are still operating at greatly reduced output rates."

Speakers on the webinar also expressed concern over whether a potential second wave of COVID-19 infections in the fall could lead to a second plunge in fuel demand.

"I know there's been a lot of negativity about a resurgence of the coronavirus and what that will do to the economy," Hubbs said. "That uncertainty is huge, and it will have big implications to gas demand, ethanol production, and on top of that, corn use for ethanol."

Looking even further into the future, the panelists compared the COVID-19 demand dip to losses the industry could suffer if electric vehicles (EVs) are widely adopted.

Irwin said it depends on the duration of the transition to EVs. "It might be faster than conventional wisdom might lead you to believe," he said.

"We see a lot of car companies investing in this technology," said Hubbs. "The money's been put in, and I think the cards have been dealt. It's not going to be an immediate shock like we saw with COVID-19 -- I think it's more of a gradual grind downward that lasts multiple decades."

But Mosbey said he sees an opportunity for ethanol, perhaps in the form of ethanol-electric hybrid vehicles.

"That's a nice path forward for an ethanol plant or for agriculture," Mosbey said. "Growth for the ethanol industry is not impossible, but I would say it looks like it will be challenging if we don't have significant exports pick up.

And we don't see a way to get ethanol into other countries and start to put it in their gasoline supplies, because it does seem like the writing might be on the wall for electric cars.

"It's going to take time. It goes back to production discipline, how we manage these plants going forward, and what options can we come up with to make them profitable with other products and product diversification and continuing to utilize the U.S. corn crop."

Get accurate, up-to-the minute news, pricing and analysis for buying and supplying ethanol-blended fuel and biodiesel with OPIS Ethanol & Biodiesel Information Service. This service includes real-time news alerts, end-of-day pricing assessments, and a weekly newsletter and rack pricing report. Sign up now for a free 3-week trial now!

 

--Reporting by Aaron Alford, aalford@opisnet.com;

--editing by Jeff Barber, jbarber@opisnet.com

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Europe Gasoline, Diesel Prices Plummet Amid April Lockdowns: OPISNAVX

May 20, 2020

Retail prices for diesel and gasoline in Germany, the United Kingdom, France, Spain and Italy plunged in April amid regional travel restrictions to curb the spread of the coronavirus disease 2019 (COVID-19) pandemic, according to data from OPISNAVX.

Diesel prices plummeted the most of the five countries in Spain, due to the country's stringent movement restrictions, as values fell by 9.37 euro cents/litre (12.5 dollar cents/litre) in April compared to March. Spanish motorists paid the least for their diesel of the five countries, at 1.03 euros/litre. In comparison, Italian motorists paid the most, at 1.34 euros/litre for diesel at the pump, OPISNAVX data show.

Diesel prices in April across all five economies declined by an average 6.3% compared to March, while gasoline prices fell further still.

Gasoline prices declined the most in Germany, shedding 11 euro cents/litre in April compared to March and nearly 30 cents/litre compared to April 2019.

Spanish gasoline prices were the cheapest among the five countries, at 1.11 euros/litre, while Italian drivers paid the highest pump price for gasoline, at 1.46 euros/litre.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

 

--Reporting by Selene Law, selene.law@ihsmarkit.com;

--Editing by Rob Sheridan, rob.sheridan@ihsmarkit.com

Copyright, Oil Price Information Service


Vietnam Gasoil Importers Return After Five-Month Lapse on Lockdown Easing

May 20, 2020

Vietnamese gasoil importers returned to the market after a five month hiatus as the nation scaled back stringent coronavirus disease 2019 (COVID-19) lockdown measures, among the first to be implemented in the world, as the rate of infections flatten.

The opening up of the industrial, agricultural and entertainment sectors as well as removal of travel restrictions has bolstered diesel demand, traders said.

Three of the nation's importers floated at least six tenders seeking as much as 165,000 mt of 500 ppm sulfur gasoil for delivery in late-May to early-July. The last buy tender was issued by Petrolimex in December 2019, according to OPIS records.

This time, Petrolimex is seeking via a tender 35,000 mt for May 27-31 loading from either Singapore, Thailand, Malaysia, or South Korea.

It had also earlier issued another tender for 70,000 mt for May 21-June 15 loading from the same locations.

On its part, PetroVietnam is seeking up to 30,000 mt for June 15-23 delivery, according to a tender which closed on May 19.

It has previously sought 20,000 mt for May 20-June 5 delivery.

Saigon Petro has a tender for up to 10,000 mt for either July 1-5 delivery, or June 24-July 2 loading from either Singapore, Thailand, Malaysia, or South Korea, according to a document.

Apart from seeking incremental gasoil imports, refiners are also channeling their output to the domestic market to meet recovering demand, market sources said.

Nghi Son Refinery and Petrochemical (NSRP), for example, will not export any spot diesel cargoes in May and June, according to sources with knowledge of the matter.

NSRP typically exports via term deals but will turn to the spot market when buyers cancel their liftings. It last issued a sell tender for 32,000 mt loading on April 10-12, which was canceled due to a lack of interest, traders said at that time.

Reference a single daily index for buying and selling jet fuel and gasoil profitably in Asia with the OPIS Asia Jet Fuel & Gasoil Report. Try it free for 21 days

--Reporting by John Koh, John.Koh@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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How Global C-Store Giant Adapts to Pandemic


May 19, 2020

Pay for fuel with your license plate.

That's one of the frictionless payment initiatives Alimentation Couche-Tard Inc. has rolled out in response to the coronavirus disease 2019 (COVID-19) crisis. And there are more ways the convenience store giant is adapting to the "new normal" in the wake of the virus, according to a status report released today.

Like other convenience-fuel retailers, Couche-Tard has pulled forward certain technologies that could help with social distancing during the pandemic as well as serve customers in the future. The company is also tweaking its inventory based on changing consumer purchasing habits. And it has adopted new policies to protect customers and employees.

As OPIS has reported, convenience store operators are expanding delivery service and online ordering for pick up, as well as adopting technology such as scan-and-go to reduce the need for social interaction and to speed transactions.

And in its report, Couche-Tard said it also has "pulled forward" technologies that could become "key to serving customers beyond the current pandemic." Among the initiatives are: adopting a "frictionless" payment technology in Norway to accept fuel payments using license plate recognition; expanding home delivery in North America to more than 620 stores; and offering click-and-collect and curbside delivery in Europe and North America with preordering and payment through the Circle K app.

Couche-Tard said that in Europe shopping behavior began to change during the second week of March when the World Health Organization had officially declared

COVID-19 a pandemic. "In North America, the impact on shopping trends was similar but lagged that of Europe by one week," the company said, noting that its stores remained open during stay-at-home orders throughout most of its footprint because fuel retailers and c-stores were considered essential businesses.

"Fuel volumes declined rapidly during the first few weeks that followed the implementation of restrictive measures across the different regions but stabilized during April and began to see a gradual improvement in the latter part of the month. Fuel margins overall have benefited from the rapid and steep declines in crude pricing," the company said.

In the early days of the crisis, in-store sales benefited from "pantry stocking," but merchandise sales declined starting in mid-March due to lower traffic. "Overall, a higher average basket helped offset a portion of the lost customer visits," the company said.

Couche-Tard and other convenience store chains have reported higher demand for alcohol and tobacco products, as well as basic staples, canned and dry goods and cleaning and sanitation products. The company said the demand for those products has helped offset lower demand in the prepared food category.

"Couche-Tard's teams in Europe recommended adjustments to the in-store assortment, which allowed stores in North America to better anticipate the changes in shopping behavior and the items that could see greater demand," the report said.

Regardless of the decline in prepared food business, Couche-Tard said in its report that it still plans to have its "Food at Scale" food service initiative in 1,500 locations by this fall. "This continues to be an important area of focus and capital expenditures for this initiative remain in the budget for fiscal 2021," the company said.

As essential businesses, c-stores have adopted measures to protect employees from exposure to the pandemic and to reward them for their efforts to keep stores cleaned and well-stocked during the crisis. Couche-Tard's Emergency Appreciation Pay Premium of $2.50/hour in North America for hourly workers in stores and distribution centers is in line with the $1/hour-$3/hour other c-stores have said they are paying. For North American workers, the company also set up an Employee Assistance Plan during the pandemic and an Emergency Sick Care Plan for hourly workers that includes a bank of sick pay and a pay continuation benefit for employees diagnosed with the virus or placed under mandatory quarantine. The company also provides access to virtual healthcare for hourly employees in the United States.

Couche-Tard said it has set up a COVID-19 Assistance Fund to help employees "most severely impacted" by the pandemic. The assistance is drawn from salary contributions by Founder and Executive Chairman Alain Bouchard, President and CEO Brian Hannasch and other members of Couche-Tard's executive leadership.

The company said it is moving to "preserve its cash position and financial flexibility, including a pause to share repurchases." As previously reported, it also put its acquisition of Caltex Australia on hold. As of Feb. 2, 2020, Couche-Tard said it had $1.8 billion in cash and equivalents on its balance sheet and another $2.5 billion available on its revolving credit facility. CFO Claude Tessier said the company went into the crisis in a "strong position" and is taking steps to "be ready to reinvest in our business and in the economy when the time comes to exit this crisis."

Couche-Tard did not respond to questions on further detail concerning the impact of the virus on its company and specific initiatives by presstime Tuesday afternoon.

Take action with real-world news and tips geared for fuel marketers, convenience store operators and gas station managers with OPIS Oil Express Newsletter. Start your free 2-week trial!

 

--Reporting by Donna Harris, dharris@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

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OPEC+ Output Cuts Send Differentials Jumping, China Seeks Spot Barrels

May 19, 2020

Crude oil fundamentals have improved significantly in the past week as the OPEC+ output cuts continue to crimp supplies pushing buyers, especially China, to pick up incremental barrels from the spot market, sending differentials soaring high into the positives, trading sources said.

Tighter supplies that was reflected in numerous May loading programs and term allocations were repeated in June but to a greater extent for clients of Saudi Aramco after the kingdom unilaterally reduced output for next month by an additional 1 million b/d, they said.

“The June allocations from Middle East producers were confirmed to Asian customers. Saudi Arabia has cut a lot, even refiners in China and India received cuts. That’s why there’s a lot more demand for spot cargoes,” said one trading source.

“China will mop up all the cheap spot barrels that are out there,” the source said, adding that this general rebound in market fundamentals as seen through the narrowing contango and bigger premiums, could encourage traders to release their stored barrels, especially those kept on board tankers.

Spot June-loading Basrah Heavy crude to Asia, for example, traded at a premium of as much as $5/bbl to its official selling price (OSP) compared with an average of around $3.50/bbl for May barrels. Similar increases were also seen in other actively spot traded key grades such as Urals, Murban and Upper Zakum, the source said.

The front-month July-August Globex Brent contango narrowed to $0.18/bbl at the Singapore 4:30 pm close on Tuesday compared with a whopping minus $3.68/bbl for the June-July spread a month ago on April 17.

Trading sources said China is likely to emerged as a big spot buyer if the economics work in bringing long-haul cargoes to their shores as local refiners hike runs on the back of renewed industrial activities and transport fuel demand as coronavirus disease 2019 (COVID-19) restrictions are relaxed.

However, this has to be balanced against the bumper crude oil volumes that are already on their way to China after buyers took huge advantage of the deep price falls to purchase a lot of April loading cargoes, they said.

There are another 215 million barrels of seaborne April-loading crude oil that is still on the way to China in addition to the 155 million barrels that has already been delivered, data from IHS Markit’s Commodities At Sea (CAS) showed.

The total volume of about 370 million barrels that was loaded in that one month, a massive 62% jump from March, was the most in CAS records going back at least four years. 

So far in May, 185 million barrels, or about 10.3 million b/d, have already been loaded, the CAS data showed. Of the total 230 million barrels shipped out in March, about 30 million have yet to reach China, according to the CAS data.

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China placed a lot of its crude arrivals in March and April into storage as domestic refinery runs were hurt by the demand erosion caused by COVID-19. But now, it is one of the first countries to emerge from this pandemic and is chalking up impressive domestic fuel demand recovery, apart from jet fuel.

Crude throughput in April jumped to 53.85 million mt or about 13.1 million b/d, data from the National Bureau of Statistics (NBS) showed. This volume processed is 0.8% more than March, according to the NBS data show. However, NBS gets its data from refiners which at times are under or over reported and often leads to revisions, sources said.

The NBS data also showed that runs in March were 6.6% less than February.

The run rate of 13.1 million b/d would work out to about 77% of Chinese refining capacity, or around 3.5% more than a year ago, which IHS Markit analysts say is well above than their estimates of 11.7 million b/d.

The IHS Markit estimate is more line with what’s happening on the ground where national oil companies have run their refineries at lower rates while independents have cranked up to as high as 77% of their capacity as they took advantage of the domestic fuel floor price mechanism.

“Downstream oil demand is only 90% of last year's level, considering the refiners' high stocks built throughout the first quarter it's hard to imagine overall runs can flip to positive growth,” said Feng Xiaonan, IHS Markit downstream analyst in Beijing. 

Refinery runs in China are expected to increase to 69.8% of capacity in May, according to preliminary estimates from IHS Markit compared with typical rates of around 77% prior to COVID-19. Operations dropped to 55% in February before recovering to 60% and 68.8% in March and April, respectively, IHS Markit data show.

“The Chinese government are asking refiners to import as much as they can. China may have much more crude in storage than people expected, it could be as much as 30% of imports going into storage,” Feng said earlier, referring to arrivals in the first four months of the year.

Oil traders said that there will be no shortage of sellers looking to place cargoes that are currently floating around the world with Chinese buyers renewing their interest in cargoes from the U.S. after snapping up supplies from Brazil and West Africa.

CAS data show that there are about 176 million barrels of crude oil stored on board 133 tankers made up of 65 very large crude carriers (VLCCs) and 68 Suezmax.

“We are seeing some traders holding North Sea crude on floaters starting to show them to Asian refiners,” said one source, adding that it was likely that in the coming days some of these would begin their journey East.

Shipping fixtures this week show Unipec booking three VLCCs, the New Pioneer to load from the North Sea on June 5-10, the Amyntas from Skaw, a ship-to-ship (STS) transfer site, on May 25-30 to Ningbo at a cost of $6 million and the Nave Galactic also from Skaw on June 1-5 to the same port at the same price.

Mercuria booked the VLCC DHT Panther to pick up a cargo from the USG to South Korea on May 25-30 at a cost of $5.95 million, the fixture showed.

TRACKING COMMODITY CARGOES HAS NEVER BEEN EASIER.

The Commodities at Sea suite of products deliver critical information on commodity movements with easy-to-use visualization and data extract tools so you can track market shifts and new opportunities right away with a few clicks. Learn More

 

--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com;

--Editing by Carrie Ho, Carrie.Ho@ihsmarkit.com

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As Personal Travel Rebounds, Outlook Still Low for Memorial Day

May 18, 2020

Personal travel in the United States is now about 25% off where it was before the start of the coronavirus disease 2019 (COVID-19) outbreak. But even as motorists return to the roads, AAA is forecasting Memorial Day travel will likely hit record lows.

In its latest summary of U.S. travel data on Monday, research firm Inrix said personal travel in the United States during the week ending May 15 increased for the fourth-straight week in a row and is now at levels last seen on March 21. That was shortly after states began instituting stay-at-home orders aimed at slowing the spread of COVID-19. The national rate of travel has now increased every day since April 15, with last week 25% off normal levels compared to 29% off normal a week earlier.

Personal travel rebounded across all states, with four states seeing travel off by less than 10% from the pre-COVID-19 baseline level. Travel in Wyoming remains the least-affected by the COVID-19 outbreak, with levels only 1% off those seen before the start of efforts to contain the pandemic. Two states, Hawaii (51%) and New Jersey (43%) continue to see travel off by more than 40% from the baseline, while 12 states saw the level of travel off by between 30% and 39%. Travel was off between 20% and 29% in 18 states and it was off between 10% and 19% in 14 states.

Meanwhile travel also increased in 97 of 98 metropolitan regions tracked by Inrix, with only Albany, N.Y., seeing travel decline -- sinking 0.5% lower than a week earlier. New York City continues to see travel lag furthest behind baseline levels, at 46% off pre-COVID-19 levels, followed closely by San Francisco, 45%, Miami, 45%, and Orlando, 43%. Inrix said Mobile, Ala., was the first metropolitan area to see travel "recover" from the COVID-19 outbreak, with travel 1% higher than pre-COVID-19 baseline levels.

National longhaul truck travel also increased again during the week, now 6.1% off pre-pandemic levels, compared to 7.6% the week earlier.

The increases in travel came as many states around the nation began lifting stay-at-home orders and opening some businesses last week. But even as life in the United States slowly begins to head back toward normal, AAA is saying anecdotal reports suggest fewer people will be traveling for the Memorial Day weekend this week than in past years.

"Last year, 43 million Americans traveled for Memorial Day Weekend -- the second-highest travel volume on record since AAA began tracking holiday travel volumes in 2000," said Paula Twidale, senior vice president, AAA Travel. "With social distancing guidelines still in practice, this holiday weekend's travel volume is likely to set a record low."

Memorial Day is considered the unofficial start of the summer season, and driving activity is thought to provide an early glimpse into gasoline demand during the summer driving season.

Memorial Day 2009 holds the record for the lowest travel volume at nearly 31 million travelers, according to AAA. That holiday weekend came toward the end of the last great recession.

Travelers who do take to the road will likely find gas prices substantially lower than last year. The national average price of regular unleaded is $1.8791 today, according to AAA data, nearly $1/gal less than the $2.8544/gal seen at the same time in 2019. National gas prices, however, have been increasing since reaching a recent low of $1.7682/gal on April 29.

AAA said that because COVID-19 has made economic data unreliable this year, it will not issue a formal Memorial Day travel forecast of the number of people it expects to be on the road -- the first time in 20 years that it hasn't issued such a report.

The agency said that since April it has started to see a modest increase in online travel bookings, suggesting that people's confidence is slowly improving. The agency said it expects that this summer, most travel will involve road trips to local and regional destinations.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Steve Cronin, scronin@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

Copyright, Oil Price Information Service


Scrubbing Ship Fuel Emissions Still Makes Economic Sense: BIMCO

May 18, 2020

Deploying technology to scrub ship exhaust emissions remains more economically viable than burning fuel oil with a lower sulfur content, chief shipping analyst at Baltic and International Maritime Council (BIMCO) Peter Sand told OPIS on Monday.

Many shipowners expected a fast payback from their investment in scrubbers, indicated by forward swaps curve values for high- and low-sulfur fuel oils after the implementation of new International Maritime Organization legislation on Jan. 2 this year, which mandated the use of very-low-sulfur fuel oil unless an exhaust gas scrubbing system was onboard.

The spread between HSFO and VLSFO barge spot prices loading in Rotterdam was $313.25/metric ton on Jan. 2, shrinking to just $58.75/ton by May 15, according to OPIS marine fuel pricing data. The spread between the two fuels contracted as oil prices plummeted amid the global reduction in oil demand due to travel-restriction efforts to contain the coronavirus disease 2019 (COVD-19) pandemic.

"Cancelling scrubber installations on the basis of the current low spread -- No, I don't think that will happen," Sand told OPIS. "Cancellation or postponement due to financial distress may be seen in some cases, as loss-making freight rates are all around in dry bulk and container shipping sectors. Payback times are extended at the moment, but owners know their spreadsheets and operations. It still makes economic sense."

Sand expects the spread between VLSFO and HSFO to widen to a more typical level of around $150-200/ton once the oil market becomes less volatile and the usual ratios between refined products start to emerge. Demand to retrofit scrubbers that can cost between $1.5 million and $5 million to install, according to IHS Markit analysts and industry sources, has slowed due shipyards suspending operations amid the COVID-19 pandemic.

"Payback times are highly dependent on price spreads but also on vessel size, route, fuel economy and of course the price paid for the scrubber system and its installation," said Hedi Grati, refining and marketing consulting director at IHS Markit, the parent company of OPIS.

Around 2,000 ships had scrubbers installed at the start of the year and this is forecast to around 3,400 ships by the end of the year, according to IHS Markit analysts.

MONITOR KEY BUNKER FUEL PRICES AND RELATED GLOBAL SHIPPING MARKETS.

OPIS Global Marine Fuels Report delivers daily assessments of marine bulk and bunker fuel prices in key global ports, including calculated prices for the new 0.5% VLSFO, a new fuel created in anticipation for IMO 2020. Easily track cargo and bulk fuel prices for Asia, Mideast, Europe and the Americas with this concise report filled with at-a-glance tables and charts. Start Your Free 30-Day Trial

 

--Reporting by Stacy Irish, stacy.irish@ihsmarkit.com;

--Editing by Rob Sheridan,rob.sheridan@ihsmarkit.com

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Citi Suggests Most Pundits Overestimated Demand Shock; Sees Crude Rebound 

May 14, 2020

Analysts at Citi observe that the worst of the virus-inspired demand shock is over, enabling its research team and others to focus more intently on supply.

In a 36-page report for clients issued Tuesday, they see twists and turns for Brent and WTI but conclude with much higher price forecasts than current forward curves imply.

The bank now believes that the global demand decline in the second quarter will be around 15.7-million b/d, well below some of the more aggressive targets as well as the consensus view. The focus now turns to how much of the shelved or shut-in oil comes back, and into what markets and how soon?

The investment house is generally confident that OPEC+ has addressed the glut, portending more reasonable balances down the road. News of Gulf Cooperation Council countries slashing an additional 1.18-million b/d of crude helps and it now appears that OPEC+ countries are considering longer extension terms for the more than 9-million b/d of production already cut.

OPEC+ members will meet again in the first week of June. Citi OPEC+ anticipates that meeting will take place against the backdrop of strong compliance, with the notable exception of Iraq. That country's production is estimated at 4.4-million b/d in the first third of May, or some 800,000 b/d above pledged quota.

Citi believes that if Brent is priced between $30-$35/bbl at the time of the conclave, they may keep the OPEC+ cuts in place through at least July and even September. August Brent, which will represent the prompt contract when delegates gathered, closed under $30 bbl Wednesday. Uncertainty is expressed as to whether planned tranches of production increases will follow the schedule outlined in the April 2020 agreement.

The greatest uncertainty, however, is attached to the U.S., which Citi describes as the "largest and only true swing producer."  U.S. crude production clearly peaked at 13.1-million b/d in March, and the bank sees a September trough of around 9.6-million b/d, resulting in a total decline of 3.5-million b/d.

Most interestingly, the bank suggests that shale production isn't dead but in a temporary limbo. Oil rig counts could stay low through 2020 and companies might need to see $40 bbl or higher WTI numbers before drilling more wells. But Citi does believe that WTI could bounce back to $42 bbl in the fourth quarter of this year.

The return of U.S. production is entirely tied to price. Majors might only need two months with WTI above $35/bbl to act, while independents might require 3 months above $40/bbl. The bank's commodities' team has faith that markets will get to those levels. Official projections are for a WTI average of $33/bbl in 3Q2020 and a $42/bbl target for the fourth quarter.

The numbers in 2021 advance significantly. Citi projects an average Brent price of $56/bbl next year with WTI coming in at $52/bbl. By 2022, US oil production growth should recover toward 1-million b/d and perhaps even move global balances toward a small surplus. The bank also believes that oil price time spreads in the first half of 2021 will move back into backwardation.

There are caveats aplenty. In addition to uncertainty about future waves of COVID-19, supply risks to the upside exist for Norway, Guyana, Brazil, and even Canada. Among OPEC countries, more barrels might surface from Libya, Iran, Iraq and even Venezuela.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

- Reporting by Tom Kloza, tkloza@opisnet.com;

- Editing by Steve Cronin, scronin@opisnet.com

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US Toluene-Gasoline Spread Shrinks by 75%; Xylene Sellers Seek Chem Demand

May 14, 2020

While many petrochemical markets have been affected by demand that dropped rapidly amid quarantines around the world related to the coronavirus disease 2019 (COVID-19), toluene has been hit particularly hard.

Despite supply curtailments as US refinery run rates dropped to 70%, toluene supply has been building as the gasoline markets have essentially shunned the commodity chemical as blenders are swarmed with competitive offers for other blendstocks. The US produces about 8,250 mt/day of toluene; gasoline blending accounts for almost 50% of toluene demand.

Prior to the US declaring pandemic conditions, toluene was trading around 85 cts/gal above RBOB. Today, that spread is nearing 20 cts/gal. The best prices that high-quality toluene have seen recently were from certain solvent chemical markets, but demand is too shallow to have any meaningful impact.

Buying from the solvents sector briefly pushed up toluene prices by a few cents in early May, but when it evaporated, the market fell right back to gasoline blending values.

Mixed xylenes (MX) markets are also suffering from low demand from both chemical and gasoline sectors, but to a lesser extent than toluene. A brief arb to Asia alleviated some of the MX oversupply, but its price tanked 10 cts/gal when that activity ended, hitting a new low of 23 cts/gal over RBOB. Like toluene, MX was trading at more than 80 cts/gal above RBOB prior to the pandemic.

All gasoline blendstocks have been hit hard in the COVID catastrophe. On Feb 3, CBOB was about 145 cts/gal in the USGC and its spread to premium was 14.75 cts/gal. On Wednesday, CBOB was about 73.5 cts/gal and the spread to premium was actually higher at 17 cts/gal.

Along with the outright price for regular grade, differentials for other high octane blendstocks have fallen. In early February, alkylate (92 octane 5.5 RVP) was 39 cts/gal over gasoline and reformate (100 octane, 1 RVP) was 62 cts/gal over gasoline. On Wednesday, alkylate was 16 cts/gal over gasoline and reformate a 35 cts/gal over gasoline. Raffinate, a 60-65 octane blendstock has gone higher on a differential basis, moving from 20 cts/gal below gasoline in early February to 10 cts/gal under gasoline, but the slide in gasoline means that raffinate's outright price slid from 125 cts/gal to 63.5 cts/gal.

OPIS PetroChem Wire's Daily Wire provides closing prices and a summary of the day's trading activity for US ethylene, proylene, polymers and upstream NGLs markets. Begun in 2007, its olefins and polyolefins prices serve as benchmarks for a number of physical and swap contracts that trade on the CME/NYMEX Clearport system. Learn more & try it free

 

--Reporting by Shayan Malayerizadeh, Shayan.Malayerizadeh@ihsmarkit.com and Robert Sharp, robert@petrochemwire.com  

--Edited by Diane Miller, Diane.Miller@ihsmarkit.com

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Singapore Bunker Sales Unexpectedly Rose in April Even as Virus Stalls Trade

May 14, 2020

Sales of marine fuels in Singapore, the world's largest bunkering port, rose in April from a year ago in contrast to the demand decimation seen on other transportation fuels such as gasoline, diesel and jet fuel due to coronavirus disease 2019 (COVID-19) lock down measures across the world.

Fuel sales in April rose a surprising 11% to 4.11 million mt from 3.71 million mt a year ago but was down slightly from 4.32 million mt in March, according to preliminary data from the Maritime Port Authority of Singapore (MPA).

Shipping and bunkering sources were hard pressed to explain the demand jump, which they said may possibly be due to a slowdown in cargo flows a year ago when China and U.S. were at loggerheads in a trade war amid an increase in the overall global vessel fleet.

Singapore flagged shipping tonnage increased to 96,838,000 gross ton in April 2020 from 93,926,000 gross ton in April 2019, data from MPA showed. The April marine fuel sales volume is also well above the 3.95 million mt monthly average chalked up last year.

However, month-on-month the dip is clearly reflective of COVID-19, which has curbed global trade. The number of vessels that visited Singapore for bunkering dropped to 3,202 from 3,557 in March, MPA data showed.

The Purchasing Managers' Indexes (PMI) across Southeast Asia slumped below 50, the dividing line between expansion and contraction, with Singapore down at 44.7 in April from 45.4 in March, according to data from IHS Markit. China, the world's second-biggest economy also registered a PMI contraction of 49.4 in April from 50.1 in March.

The sales volume shows that the industry is recovering following the record January pent-up record sales of 4.51 million mt, analysts said. Demand surged on the back of new IMO regulations that implemented a 0.5% sulfur cap on vessels without scrubbers from January 1, 2020.

Sales of low sulfur fuel oil (LSFO) with a maximum sulfur content of 0.5% dipped in line with the overall sales but still remained as the large marine fuel grade sold in April, accounting for 69% of total volume. This solidified its status as the preferred bunker fuel among shippers post-IMO 2020.

LSFO sales totaled 2.85 million mt in April, down from 3 million mt in March with the 380 CST grade being the preferred choice at 2.15 million mt, the MPA data showed.

"The higher viscosity makes it easier for ship engineers to handle," said a European shipowner.

While only 597,800 mt of 100 CST LSFO and 111,100 mt of 180 CST LSFO were sold in the same month.

"Typically distillate blending falls into the 100 CST grade, since it is a maximum specification, while those that are produced from residue steams will be mostly in the 380 CST grade, thus leaving very little supply of 180 CST," said Matthew Chew, principal oil analyst at IHS Markit in Singapore.

Delivered LSFO bunker price in Singapore averaged at $239.19/mt in April, down from $317.55/mt in March, according to data from OPIS, a unit of IHS Markit.

Sales of high sulfur marine fuel oil (MFO) were slightly higher at 771,200 mt in April from 738,400 mt in March, of which 692,800 mt were 380 CST and 78,400 mt were 500 CST.

Under the IMO 2020 regulations, only vessels installed with scrubbers are allowed to burn 3.5% sulfur MFO. IHS Markit estimates that around 3,897 ships out of an approximate global fleet of 96,000 will be fitted with scrubbers by Jan 1, 2021.

MONITOR KEY BUNKER FUEL PRICES AND RELATED GLOBAL SHIPPING MARKETS.

OPIS Global Marine Fuels Report delivers daily assessments of marine bulk and bunker fuel prices in key global ports, including calculated prices for the new 0.5% VLSFO, a new fuel created in anticipation for IMO 2020. Easily track cargo and bulk fuel prices for Asia, Mideast, Europe and the Americas with this concise report filled with at-a-glance tables and charts. Start Your Free 30-Day Trial

 

--Reporting by Thomas Cho, Thomas.Cho@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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OPIS Poll: Asia Cracker Operators to Cut LPG Usage in June for Third Month

May 13, 2020

Asian ethylene plant operators plan to crack less liquefied petroleum gas (LPG) in June for a third consecutive month due to sustained strength in the gas and cracker turnarounds. However, LPG intake may rebound during the northern hemisphere summer.

LPG usage for petrochemical production in June is set to decline 2% on-month to 350,000 mt, according to an OPIS poll completed on May 11. Revised figures show that in May, gas cracking volume is to fall to 357,000 mt from 436,000 mt in April, according to the survey.

LPG prices strengthened in the past month amid a surge in demand from India and Indonesia following lockdown measures to contain the coronavirus disease 2019 (COVID-19), which boosted demand for the cooking fuel. The CFR Japan propane price on April 20 rose to as high as $356/mt, the strongest since March 6, data from OPIS, a unit of IHS Markit, showed.

Higher LPG prices deteriorated gas cracking economics with the propane/naphtha ratio assessed at 179.3% on April 15, the highest on data going back to July 2014. The ratio fell to 116.8% on May 11.

Petrochemical producers typically find it more attractive to crack naphtha instead of LPG when the ratio rises above 90%.

The trend of reduced LPG usage, however, may reverse in summer when demand for the heating fuel usually declines and as naphtha prices rebound in line with rising crude markets, said Matthew Chew, principal researcher at IHS Markit in Singapore.

"Our forecast as of end-April is showing that LPG cracking will remain unattractive till June before improving," Chew said.

"It will be more attractive from July onwards because of declining LPG demand, as well as improving crude and naphtha prices assuming that the COVID-19 outbreak is under control by then."

Naphtha values rebounded on signs of a recovery in gasoline with the CFR Japan prices up 50.5% to $249.50/mt on May 11 from $165.75/mt on April 1, the lowest on the OPIS data going back to July 2014.

The CFR Japan propane price fell 17.3% to $294.50/mt when from the April 20 peak.

"There seem to be only strong factors for LPG right now," said a buyer at a Japanese chemical producer who participated in the survey. Demand in Asia is strong, while LPG supply is likely to be tempered by the OPEC+ agreement to curb oil production, he added.

Ethylene production costs and margins from naphtha were better than LPG, according to the IHS Markit Asia Light Olefins Weekly report published on May 8.

The cash cost of steam cracking in Northeast Asia using naphtha was estimated at $116/mt as of April 30, generating a margin of $239/mt, the report showed.

The costs of cracking LPG was almost quadruple at $457/mt and the margin was minus $102/mt.

Ethylene market sentiment in Northeast Asia strengthened on tighter supply amid cracker turnarounds and bullish energy prices with some governments relaxing curbs against the COVID-19, the report said. Propylene market sentiment also firmed up, according to the report.

In Japan, Mitsubishi Chemical on May 12 shut its 539,000 mt/year cracker in Kashima for planned maintenance works, a company spokesperson said. The works will last about two months.

Maruzen Petrochemical also idled its 525,000 mt/year cracker in Ichihara on May 11 for scheduled turnaround expected to last two months, according to a company source.

Mitsui Chemical planned to conduct maintenance works at its 500,000 mt/year cracker in Osaka from June 11 to July 20, according to a company source.

Some petrochemical makers in Asia maintained lowered runs on expectations that downstream demand may weaken again with the COVID-19 hurting the global economy. The Asian Manufacturing PMI, compiled by IHS Markit, fell to 43.9 in April, the lowest since March 2009, from 48.3 in March, indicating a deterioration in regional business conditions.

The dismal economic situations caused one of the survey participants to mull slashing operating ratios further.

"We are considering further run cut, even probably to around 80%," said the buyer at a petrochemical manufacturer in Northeast Asia, adding their cracker has been operating at around 90%.

"A rate below 80% is unlikely, given naphtha inventories," he said.

Methodology: IHS Markit OPIS collects Asian petrochemical companies' plans for the current month and the next month, as well as actual cracking volume in the previous month. IHS Markit OPIS checks if any manufacturers revise their plans for the current month and if any manufacturers crack more or less than initial plans in the previous month. IHS Markit OPIS contacts feedstock procurement officers of each companies for the survey by phone, email or messengers in the last week of previous month or the first week of the current month. IHS Markit OPIS surveys 16-20 companies a month.

Gain greater transparency into Asia-Pacific markets for more strategic buy and sell decisions on refinery feedstocks, LPG and gasoline with the OPIS Asia Naphtha & LPG ReportGet your free trial here

 

--Reporting by Jongwoo Cheon, Jongwoo.Cheon@ihsmarkit.com, Masayuki Kitano masayuki.kitano@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

Copyright, Oil Price Information Service


Chinese Refiners to Slash Gasoline Exports in May, Asian Markets Get Support

May 12, 2020

Chinese refiners will sharply reduce gasoline exports in May from April as the coronavirus disease 2019 (COVID-19) hurt overseas demand while higher domestic margins kept more product at home, trade sources said.

Oil companies have chartered just two tankers to load 65,000 mt in May from China so far, down from a massive 16 vessels booked to lift 680,000 mt in April, according to shipping fixtures.

Lower exports are expected to provide further support to the broader Asian gasoline market, which started rebounding over the past few days on signs of a consumption recovery as some governments relaxed preventive measures against the pandemic, they added.

"China's May exports would be around half of April as export margins are weak while domestic margins are firm," said a Singapore-based trader, while declining to comment on exact volumes.

"The cut will be big enough to cover all bearish factors such as the possibility of sales of floating gasoline cargoes," he added.

A Singapore-based analyst said 92 RON margins in China based on domestic wholesale prices were estimated at around $11/bbl. In contrast, Singapore 92 RON crack was negative at a minus $0.582/bbl as of May 11, according to IHS Markit OPIS data.

Domestic margins in China were supported as authorities in March decided not to cut local product prices further after global crude prices fell below $40/bbl, the floor for the nation's product pricing system, as reported earlier.

Consumption also recovered as COVID-19 travel restrictions in the country were eased.

Regional demand also showed signs of rebound with other countries such as South Korea and India loosening similar curbs. The Singapore 92 RON crack on May 11 was still far better than minus $12.986/bbl reached on April 14, the lowest on IHS Markit OPIS data going back to July 2014.

"If demand is itself recovering at the same time as they cut back exports, then we may see some support on regional gasoline cracks," said Feng Xiaonan, IHS Markit downstream analyst in Beijing when asked about gasoline consumption in Asia.

"Demand depends on how we assume the COVID-19 will play out. If the conditions get better, I don't see why gasoline will stop from recovering further," Feng added.

China's refiners, however, will have to increase exports eventually as there was little room for more growth in domestic consumption and inventories will increase on higher crude runs, the Singapore-based analyst said.

They were just holding off exporting for May, hoping for a recovery in margins from June onward, the analyst added.

"Domestic demand is now already back to 90-95% of usual levels, so there is limited upside of any demand increase," the analyst said.

In the first quarter, China exported 4.55 million mt of gasoline, up 21% from a year earlier, according to IHS Markit OPIS calculations based on the customs data.

China released two batches of oil product export quotas for this year so far, allocating a total of 49.19 million mt, compared to 56 million mt in the whole of 2019, as reported earlier.

Gain greater transparency into Asia-Pacific markets for more strategic buy and sell decisions on refinery feedstocks, LPG and gasoline with the OPIS Asia Naphtha & LPG Report. Get your free trial here

--Reporting by Jongwoo Cheon, Jongwoo.Cheon@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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OPIS Data Shows High Margins Shielded U.S. Retailers During COVID Downturn

May 11, 2020

Record-high fuel margins in March led to retailers nearly tripling profits from selling gasoline before demand started to plummet due to the coronavirus disease 2019 (COVID-19), exclusive OPIS data shows.

Still, even as gasoline demand across the nation was slashed by nearly 50% during the peak of COVID-related shutdowns, station profits on gasoline sales continued to significantly outpace 2019 levels because of the high margins, data from OPIS' MarginPro and DemandPro show.  During the first 17 weeks of 2020, U.S. retailers saw a total average gross profit per station on gasoline sales of $116,210, compared to $67,249 during the same period in 2019.

Weekly gasoline profits are now starting to come back into line with 2019 levels. Margins have returned to levels seen before the start of the price war between Saudi Arabia and Russia, which led to the crash in the prices of crude oil and refined products.

While still significantly behind levels seen at this time in 2019, gasoline demand is also beginning to recover as more states ease travel restrictions put in place to slow the virus' spread. OPIS' calculations are based on national averages, with retailers in different regions seeing differing impacts.

Gross margins shot up in March as declines in retail fuel prices failed to keep pace with the price war-related drop seen by crude oil and refined products.

The front-month contract for RBOB futures on the NYMEX exchange, which had been trading as high as $1.66/gal in February, hit a recent low of 49.47cts/gal on March 23 - a drop of about 70% -- before slowly climbing back to average 89.66cts/gal last week.

During the first week of February, gross retail fuel margins in the United States averaged 28.7cts/gal with the estimated gross profit per station on gasoline for the week at about $4,646, according to OPIS data. That compares to an average $3,736 for the same period in 2019.

Margins began to increase during the week ending March 6, when they went from 28cts/gal the previous week to an average 32.8cts/gal and then an average 53.9cts/gal during the week ending March 13.  During that time, average station gasoline profits rose from $6,509, to $10,680. That's much higher than last year, when gas station profits climbed from $3,359 to $3,703 in the first two weeks of March.

Weekly gasoline profits reached their peak during the week ending March 15, with OPIS estimates showing them hitting $11,989 per station compared to $3,010 during the same week in 2019, an increase of more than 298%.

But at the same time, sales began to drop off as concerns about COVID-19 grew.

OPIS DemandPro data shows that U.S. demand, which had been running about 2% to 3% off 2019 levels in the opening months of 2020, crashed from a year-on-year deficit of 2.4% during the week ending March 16 to 24.1% the week ending March 23 and then 46.5% the week ending March 30.

National gasoline sales bottomed out at 49.1% behind 2019 levels during the week ending April 13. High margins shielded retailers from the impact of this precipitous decline, with retailers seeing profits of $9,582 during the week ending March 22 with margins averaging 76.4cts/gal, compared to profits of $3,615 during the week in 2019.

Profits were $8,610, up from $3,550 in 2019, for the week ending March 29, with margins averaging 86.9cts/gal. Average station gasoline profits were nearly double 2019 levels -- $7,423 with margins of 76.5cts/gal compared to $3,885 - for the week ending April 12 - just as retailers were seeing peak demand destruction.

Average gross margins in the United States hit an all-time high of 95.5cts/gal on March 23. Prior to this year, the previous record margin had been 59.3cts/gal. That record had been set on Oct. 6, 2008, at the start of the global financial crisis that led to the great recession.

Profits remained strong through April, with the week ending April 19 bringing average gasoline profits of $7,035, compared to $3,976 a year ago, on margins of 67.5cts/gal with demand off 47%. Profits for the week ending April 26 were $6,010, up from $4,658 a year ago, on margins of 61.2cts/gal and demand lagging 44.5%.

While it is still too early to estimate the average gasoline profits seen by retailers in May, the trend of falling margins and rising demand has continued, with margins during the week ending May 4 averaging about 49.1cts/gal and demand off nearly 41% compared to 2019 levels. Gross margins on Monday were averaging 30.5cts/gal.

Though margins have remained strong even as the price of gasoline has slowly dropped, the decline in the overall cost of filling up a car's tank and the steep drop in sales is hitting credit card companies, which charge a percentage fee based on the transaction cost, OPIS data shows.

Credit card revenue was slightly ahead of 2019 levels at the start of 2020 but dropped sharply as retail sales slipped due to the pandemic, according to OPIS estimates. The OPIS estimates assume the companies receive a 2% fee, known as a swipe fee, for each transaction and about 75% of fuel sales are paid for with credit or debit cards.

OPIS estimates weekly credit card company revenue hit a year-to-date high of $13.6 million on Jan. 12. That's compared to last year's January to February high of $13.77 million. Revenue continued to climb through March and April in 2019, but that's not the case this year. In 2020, revenue slid steeply after the start of March and is only slowly beginning to recover. Weekly credit card company revenue from gas station sales fell to a low of $5.46 million during the week ending April 5 and had only climbed to $6.04 million during the week ending April 26. That's compared to $16.68 million during the same week in 2019, according to OPIS estimates.

Overall, year-to-date credit card revenue from gasoline sales through April 26 is about $44.63 million, or approximately $66.68 million behind where it was at the same point in 2019, according to OPIS.

OPIS DemandPro provides actual retail sales data collected directly from station operators. Gain the advantage in your market by knowing local gasoline sales volumes at all types of sites, including chains, new era marketers and branded retailers. Request a demo

 

 

--Reporting by Steve Cronin, scronin@opisnet.com;

--editing by Donna Harris, dharris@opisnet.com

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COVID-19: Asian LNG Prices Peek Above $2/MMBtu, Outlook Still Bearish

May 11, 2020

Some Northeast Asian liquefied natural gas (LNG) buyers have re-emerged since last week for summer cargoes, nudging the region's landed prices of the super-chilled fuel back above the psychological threshold of $2/MMBtu.

Front-month June landed Northeast Asian LNG prices rose to $2.3/MMBtu, 16.5% higher than the previous trading day and 24.3% more than at the start of last week on April 27, according IHS Markit OPIS assessments.

June prices were supported by a combination of increased demand due to bargain hunting and last-minute short-covering, as well as tighter supply due to sellers preferring to float their June cargoes into July to take advantage of an inter-month contango of around 50¢/MMBtu.

July, on the other hand, benefited from generally lower prices and seasonality, with bargain hunters stocking up early for the peak summer month, when hot temperatures prompt more energy demand for air-conditioning.

The sudden surge in demand for summer cargoes could be seen in the number of buy tenders issued since late last week. For the second-half June delivery window, China's Foran Energy is due to award a tender on Tuesday for a late-June arrival parcel, while a South Korean buyer could be negotiating for a second-half June lot.

For first-half July, India's Reliance bought a cargo at around $1.85/MMBtu, while a second Korean buyer could be seeking an early July cargo, trading sources said.

For second-half July, China's Guangdong Energy (Yudean) closed a tender on May 8 for a July 23 delivery cargo, while Thailand's PTT is due to award a tender for a late-July arrival on May, they said.

In contrast, there only two sell tenders were issued, with Russia's Sakhalin awarding three July-loading parcels on May 8 at around $2.5/MMBtu, while Brunei offered 2-3 July delivery cargoes in a tender due to be awarded on May 12.

Some traders believe that recent low prices have lured bargain hunters and whetted extra buying appetite.

"Prices below $2/MMBtu were just not sustainable for most producers who need at least $3/MMBtu to break even. I think we have bottomed out, so more people came out to buy," said a Chinese trader.

But others warned against seeing the higher prices as green shoots in the embattled LNG market, where front-month prices are still less than half of the $5.3/MMBtu at the start of the year due to demand destruction caused by the coronavirus disease 2019 (COVID-19).

"I question if this recovery can be sustained. The fundamentals are still so weak over the longer term and unless we see more shut ins or an abnormally hot summer, prices have little support," said a trader in Northeast Asia, adding "The June contract will roll over in a few days and it remains to be seen if prices will continue to rise beyond that."

Several suppliers shared his bearishness, having recently issued market guidance pointing to expectations of lower sales in the second quarter, including Shell, which said it expected to cut LNG production to 7.4-8.2 million mt during the April-June quarter, 12.2% lower than the previous quarter and 9.9% less than a year ago.

Some suppliers have seen their pre-sold long-term volumes being turned back by Asian customers, who have requested for deferments and contractual downward quantity tolerance (DQT) exercises to manage their own brimming inventories.

A spate of cargo deferments and DQT exercises by some buyers in Japan and South Korea could have resulted in a fleet of around 15 unladen project vessels belonging to Qatargas (QG) idling near its Ras Laffan port, the sources said.

Over in the U.S., the biggest number of cancellations of long-term cargoes seen in the past few weeks more than highlight current weak fundamentals. Offtakers have opted to forgo more than 20 June-loading cargoes from U.S. liquefaction plants, even though they still had to hand over an above-$2/MMBtu tolling fee.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

 

--Reporting by Carrie Ho, Carrie.Ho@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com.

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Analysis: Unexpected Aramco OSP Hike to Asia Reflects Improved Fundamentals

May 8, 2020

Saudi Aramco unexpectedly raised its June crude oil monthly official selling price (OSP) to Asian refiners, suggesting a confidence in the region's demand recovery that's backed by strong Chinese import volumes and a significant narrowing of the Dubai time spread, said market sources.

The Saudi Arabia state-run oil giant increased the price of its biggest crude blend, Arabian Light, by $1.40/bbl to Asia compared with initial market expectations of a reduction of $2-$3/bbl, which became less and less convincing as oil market fundamentals improved, they said.

Tracing the mood of the market, one trader pointed out that at the start of April a dismal, almost Armageddon-like, view of the market emerged as supplies increased exponentially and demand destruction inflicted every major fuel consumer.

"Crude was trading at huge discounts, ending in the negative price on WTI," he said. "Then the OPEC+ output cuts started to impact, suppliers were telling us of 20%, 30% cut in volumes and the contango started to come. All of which looks like a perfect V-shape recovery.

Unlike the wider economy, many sources said that the crude oil market was reflecting a V-shape recovery as countries relax lockdown measures put in place to control the spread of the coronavirus disease 2019 (COVID-19).

China, which was the first nation to come through the worst of COVID-19, has rolled back much of its strict lockdown measures and is recording a steady, consistent rebound in gasoline, diesel and jet fuel demand as road and flight restrictions are lifted. Industries have also cranked up operations as workers make their way back to factories.

"Gasoline and diesel consumption is almost back to 95% of last year's levels, said Feng Xiaonan, IHS Markit downstream analyst in Beijing, which are based on retail fuel sales figures.

Chinese refiners, especially independents, have raised their throughput to take advantage of a crude oil floor price of $40/bbl that is used by the government to set local gasoline and diesel prices, she said.

"The independents are benefiting the most from this floor price and are running at higher levels than last year," Feng said, adding independents generally return a lesser amount by way of windfall taxes to the government than national oil companies because their ex-refinery prices are typically lower.

Refinery runs in China are expected to increase to at least 67% of capacity in May, according to preliminary estimates from IHS Markit compared with typical rates of around 77% prior to COVID-19. Operations dropped to 55% in February before recovering to 60% and 65% in March and April, respectively, IHS Markit data show.

The lower run rates suggest that a lot of China's crude oil imports in the first four months of this year have probably ended up in storage tanks, the capacity of which was severely underestimated by industry watchers, said Feng.

Customs data showed imports in April reaching 42.8 million mt, or 10.4 million b/d, and took the tally for the first four months of the year to 170 million mt, which works out to an unexpected 3% gain from the same period a year ago.

"The Chinese government are asking refiners to import as much as they can.

China may have much more crude in storage than people expected, it could be as much as 30% of imports going into storage," Feng said, referring to arrivals in the first four months of the year.

Aside from China, fuel demand in other major economics such as the United States and Germany are also showing signs of recovery as motorist are allowed to take to the streets, which is being reflected in higher refinery runs.

One measure of the optimism sweeping the Asian market can be seen in the region's benchmark Dubai crude time spread.

More than a month ago, the front-month Dubai spread fell to as low as $4/bbl in contango for May/June before recovering to minus $1.20/bbl with June/July as the new front month about a week ago. This spread narrowed to $0.60/bbl in contango this week with the new July-August months, one trading source said.

"The Dubai spreads have strengthened a lot. It is reflecting the improved fundamentals we are seeing in the market," the source said.

The improving market balance will hit a buffer in the coming days as there are still lot of crude oil stored on board tankers and filled to the brim in onshore tanks that need to be cleared out before a sustained rally can be envisaged, market sources said.

They said a narrowing of the spread has made the contango-storage trading strategy uneconomical even as very large crude carrier (VLCC) rates slumped to levels not seen since early April when the market was flooded as Saudi Arabia and other Middle East producers opened their oil taps and slashed OSPs after an OPEC+ output talk broke down.

The low freight rates and continued Chinese appetite for crude oil is likely to draw unsold cargoes from the North Sea and Latin America to East Asia, they said.

"China is buying a lot of Brazilian and other Latam crudes and will turn to North Sea next," said one trading source, adding that huge cuts to Russian Urals output on the back of higher European refinery runs should keep flows of this medium-sour grade away from Asia low unlike in end-March/first half April.

Fixture lists released on Friday look to back this view with VLCCs booked to load cargoes from Brazil, Hound Point and Southwold in the UK.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com;

--Editing by Carrie Ho, Carrie.Ho@ihsmarkit.com

Copyright, Oil Price Information Service


Analysis: With Production Cuts in Focus, How Low Will They Need to Go?

May 7, 2020

When Texas regulators on Tuesday shelved plans to impose crude oil production cuts throughout the state, supporters praised the move, saying global markets will impose their own limits on production.

But even as energy demand begins to pick up amid the easing of restrictions aimed at fighting coronavirus disease 2019 (COVID-19), the question remains just how deeply and for how long global oil production must be slashed to return markets to balance and ease a critical shortage of oil storage capacity.

Markets are already pricing in the easing of supply, as an agreement by OPEC and its allies to reduce production by 9.7 million b/d went into effect May 1.

That agreement, along with optimism that the United States and other nations are beginning to emerge from COVID-19 lockdown, boosted the front-month price of West Texas Intermediate crude oil more than 100% between April 28 and May 6, from a low of $12.34/bbl to a high of $26.74/bbl

Global crude oil demand is expected to continue to remain significantly depressed in coming months -- IHS Markit projects a year-over-year decline of 22 million b/d in the second quarter of 2020, and the International Energy Agency expects average demand for the year to contract by 9%, or 9 million b/d.

IHS Markit is the parent company of OPIS.

Analysts are now pondering how much production must fall and for how long to rebalance markets. The even larger question is just how those cuts will be accomplished.

Jim Burkhard, vice president, and head of crude oil market research for IHS Markit, said the storage shortage ensures "the world is going to see the biggest production cuts ever" in coming months, with global oil output falling by as much as 17 million b/d in the second quarter.

"It comes down to this: If you can't sell it, you can't store it, then you can't produce it," Burkhard said.

In April, both the IEA and IHS Markit warned that global oil production would likely overwhelm the 1.2 billion bbl of global crude oil storage capacity. Even with the OPEC+ agreement, Burkhard this week said supply continues to outstrip demand and threaten storage.

This dynamic was reflected in the underwhelming reaction to the OPEC+ cuts.

Even before the cuts went into effect, investment bank analysts were speculating that the group might announce a second round of reductions either at its June meeting or even before the gathering.

That's unlikely, said Burkhard, unless economic conditions force the cartel's hand.

"If price were to fall to $10, then yes, there would be consideration of deeper cuts," he said. "But the deeper cuts would also reflect reality -- if you can't sell it, it makes sense to frame it as an organized cut to boost market confidence."

What's more likely is that OPEC+ will sit tight and companies, moved by market forces, will implement cuts without being forced by government mandates, Burkhard said.

That the Texas Railroad Commission was even considering production curtailed by 20% before rejecting the plan was an indication of how difficult market conditions are, he said.

Even without mandates, cuts are being made, according to longtime oil economist Phil Verleger. In his Notes at the Margin report this week, Verleger said U.S. production might already be down by 2.7 million b/d, to about 10 million b/d, as producers shut in wells that are uneconomical to operate or because they couldn't find oil buyers in this time of record-low demand.

Verleger said his research indicated that U.S. production might need to decrease by 4.5 million b/d, or 35%, "to maintain the efficient operation of the U.S. crude logistical system."

Recent weeks have seen announcements of large cuts in United States, with much of those cuts in shale fields, where production costs are generally higher than those at conventional wells. ConocoPhillips is slashing production 265,000 b/d in May and planning cuts of 460,000 b/d in North American production starting in June. ExxonMobil has said it will shut in about 100,000 b/d of oil equivalent in the Permian Basin. Chevron will curtail 200,300 b/d of oil equivalent in May and continue that through June. Continental Resources has shut most of its wells in North Dakota's Bakken play, according to reports.

Rystad Energy said its analysis indicates 616,000 b/d of U.S. production will be shut in during May and 655,000 b/d in June.

"Given the severity of the current market situation and significant production curtailments announced already since April, shale producers are not relying on natural decline but rather are choosing more drastic measures to reduce their output substantially and fast," said Veronika Akulinitseva, Rystad vice president, North American shale and upstream.

Meanwhile Norway, Europe's largest oil producer, is reducing production by 250,000 b/d in June and then to 134,000 b/d, or about 8% of its 1.7 million b/d production, through 2020.

Cuts are likely to stay in place awhile. All the oil in storage is enough to supply global demand for about 90 days, Burkhard said. While production cuts and growing demand will draw those supplies down, the length of time it takes depends on how steeply demand rises and where production levels remain.

"May and June are probably going to be where surplus is at its worst," Burkhard said.

Verleger sees U.S. production remaining constrained through 2020 unless the pandemic eases. The economist, however, is not optimistic about a fast rebound.

Meanwhile, an increase in global demand poses its own threats. Producers would be tempted to increase output, drowning any price recovery in a wave of new oil crashing, Burkhard said.

The analyst said the OPEC+ agreement, plus reductions by private companies, resulted from a convergence of interest among producers when the price of oil sank too low. It's an unusual situation based on the current, unusual circumstances.

"As prices rise, that convergence is going to disappear," Burkhard said.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Steve Cronin, scronin@opisnet.com;

--editing by Barbara Chuck, bchuck@opisnet.com

Copyright, Oil Price Information Service


Spain's Repsol Cuts Refinery Rates to 80% Amid Jet Fuel Demand Slump: CEO

May 6, 2020

Repsol cut utilization rates at its refineries to 80% last month, reducing jet fuel production amid a plunge in demand, CEO and executive director Josu Jon Imaz San Miguel said Tuesday.

Repsol, Spain's largest refiner, cut jet output without shutting down any refineries, the CEO said in a first quarter earnings call yesterday. In comparison, refinery utilization rate in Spain was 90% in 2019, according to IHSMarkit data.

The slump in aviation fuel demand comes as flights are grounded and many countries enforce travel restrictions to curb the spread of the coronavirus disease 2019 (COVID-19) pandemic.

Repsol shut down the ISOMAX, a hydrocracking unit in Tarragona that produces aviation fuel. It reduced fluid catalytic cracker (FCC) run rates at refineries in Bilbao and Puertollano. The FCC at the Coruna refinery was now shut, Josu Jon Imaz San Miguel said. Maintenance at the Coruna refinery FCC began in January, initially for two and a half months. The unit was still undergoing maintenance by March 30, operating at reduced capacity, according to a Repsol spokesperson at the time.

Many refineries throughout the Mediterranean region have cut jet production due to the lack of demand, and aviation fuel prices in Europe have slumped. The crack spread - a measure of the profitability of the fuel - for jet barge cargoes loading in the northwest European hub of Amsterdam-Rotterdam-Antwerp flipped into negative figures in early April, plummeting to the low of minus $8.88/bbl on Tuesday. By comparison, jet barge crack spreads were pegged at plus $16.73/bbl on January 2.

Repsol has five refineries in Spain. They are Coruna (120,000 b/d), Puertollano (157,000 b/d), Tarragona (160,000 b/d), Petronor (220,000 b/d) and Cartagena (220,000 b/d). The total refining capacity in Spain is 1.4 million b/d, of which Repsol accounts for half, according to IHS data.

OPIS contacted Repsol for comment Wednesday but did not hear back at the time of publishing.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

 

--Reporting by Nandita Lal, Nandita.lal@ihsmarkit.com, Selene Law, Selene.law@ihsmarkit.com;

--Editing by Rob Sheridan, rob.sheridan@ihsmarkit.com

Copyright, Oil Price Information Service


Analysis: Gasoline Bulls Might Have to Curb Their Enthusiasm in May

May 5, 2020

June RBOB prices today surpassed 90cts/gal, representing a gain of about 140% from the 37.60ct/gal low witnessed on March 23.

The increases have been driven by statements like "Americans are driving again," or in some cases by projections that the worst of demand destruction has passed, pointing toward a return to normal driving-season consumption, perhaps later this month.

In addition to the motivation of "cabin fever," a few analysts are predicting that vehicle miles traveled could be juiced by aversion to flying and avoidance of mass transit.

June through August 2019 is a tough act to follow in the U.S., however, since those four months delivered average gasoline demand of 9.595 million b/d.

The most recent four-week average for domestic gasoline supplied from the U.S. Energy Information Administration (EIA) is just 5.329 million b/d, compared with 9.466 million b/d in the same period of 2019. The OPIS Demand Report, a weekly retail gasoline volume survey of more than 15,000 unique sites, however, hints that stateside sales have occasionally dropped below 5 million b/d, hitting a low of 4.594 million b/d for the week ended April 11. Any way one looks at it, a recovery to statistics bearing any resemblance to 2016-2019 numbers is an experiment in regaining altitude.

During the worst of the stay-at-home restrictions, OPIS measured gasoline demand on a same-store basis down 49.1% from year-ago levels. In retrospect, the week ended April 11 does appear to represent the bottom, but the climb thereafter has not exactly been frenetic.

Gasoline demand from June through September last year averaged 9.595 million b/d. If the rebound took consumption back to 75% of normal, it would imply a domestic demand figure of less than 7.2 million b/d. If social distancing and fear of the coronavirus disease 2019 (COVID 19) were significantly eased and the recovery number was 80%, demand of 7.676 million b/d would result. Only if demand destruction eased to, say, 10% would the U.S. again require 9 million b/d of motor fuel.

Chain retailers do cite a mixed recovery for gasoline in the 50 states.

Michigan appears to be the state hardest hit by a combination of COVID-19 and a struggling economy, with demand destruction measured in the mid-60s. Most recent data suggest that the state has bounced off its bottom, but the amplitude of the bounce is only about 2%.

More robust recoveries in consumption are reported for Arizona, Florida, Georgia, Kentucky, Mississippi, Missouri, Nevada, Ohio, Oklahoma, Texas, and Virginia, but OPIS cannot find a single instance where the jump was beyond single digits. Only four states can be identified with year-on-year demand destruction of less than 30%, and they are Arizona, Georgia, Kentucky and Texas. Georgia and Texas have been among the states most aggressively reopening, so they deserve scrutiny in the weeks ahead.

Wildcards for gasoline supply balances this driving season may come from offshore. May 2019 imports of motor fuel were an unusually hefty 1.148 million b/d, including 1.03 million b/d of blending components and 118,000 b/d of finished gasoline. Exports of finished gasoline last May averaged 743,000 b/d.

Both numbers are likely to be lower in the next four weeks, particularly on the import side. But if COVID-19 spreads through Central and South America, perhaps one less cargo per day of gasoline might move south from complex Gulf Coast refiners.

OPIS DemandPro provides actual retail sales data collected directly from station operators. Gain the advantage in your market by knowing local gasoline sales volumes at all types of sites, including chains, new era marketers and branded retailers. Request a demo

--Reporting by Tom Kloza, tkloza@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

Copyright, Oil Price Information Service


Hand Sanitizer Ethanol Supply Hit By U.K. Grangemouth Maintenance: Sources

May 5, 2020

Supplies of ethanol, a key ingredient for hand sanitizers that have been in exceptional demand during the coronavirus disease 2019 (COVID-19) pandemic, will tighten in Europe due to planned maintenance at the Ineos-operated Grangemouth complex this week, sources told OPIS today.

Ineos is Europe's largest producer of synthetic ethanol due to Grangemouth's two units, which produce a combined 300,000 metric tons/year of the product.

"It should have gone down three or four weeks ago, but because of the coronavirus pandemic and the fact that ethanol is one of the main components of hand sanitizer, it has been kept going," a source told OPIS. "It's needing some maintenance."

The source added that Ineos aims to complete the work in less than two weeks.

"They are trying to get it back online as soon as possible given the demand," the source said.

Planned turnarounds at the Petroineos-operated 210,000-b/d refinery and the Ineos-operated petchems complex, both situated in Grangemouth, Scotland, have been cancelled due to the pandemic, OPIS reported earlier.

Sources also told OPIS that construction work set to begin on a combined heat and power plant at Grangemouth in the fourth quarter has been postponed by Ineos. The cost of the construction work was pegged at around 350 million pounds sterling.

Ineos has been one of a number of private sector companies, ranging from oil companies to beer producers, who have responded to the pandemic by producing medical-grade hand sanitizers.

Announcing the successful construction of a hand sanitizer plant in the northeast of England, the company said in a statement at the end of March:

"Ineos is the leading European producer of the two key raw materials needed for sanitizers - isopropyl alcohol and ethanol, producing almost 1 million tons.

The company is already running these plants flat out and have been diverting more of this product to essential medical use including in the new Ineos factories."

Similar hand sanitizer factories have been built by Ineos in recent weeks at Herne in Germany and Lavera in France.

Ineos did not respond to e-mails and phone calls concerning ethanol production at Grangemouth. The company also declined to comment on OPIS stories relating to the cancelled turnaround work scheduled for April.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Anthony Lane, alane@opisnet.com;

--editing by Rob Sheridan, rob.sheridan@ihsmarkit.com

Copyright, Oil Price Information Service



COVID-19: Phillips 66 Eyes Demand, Imports for Refining Recovery Signals

May 4, 2020

Phillips 66 has reduced utilization at its oil refineries to better match fuel demand that has been floundering because of the coronavirus disease 2019 (COVID-19) pandemic, and it is taking production where refining margins lead it. But the petroleum refiner and marketer also offered up some interesting supply indicators to monitor as recovery signals.

In its May 1 earnings conference call, the company updated its view of refined products demand in its system so far in 2020, noting that gasoline demand destruction in the U.S. that had reached as much as 50% had eased to about 35%.

Demand destruction in western Europe that had reached 70% has lessened to about 50%, according to Brian Mandell, executive vice president of marketing and commercial.

"We got down to about 65% (refinery) utilization when demand was at its worst," he added.

Phillips' short-term view of U.S. gasoline demand is buoyed by expectations of 16 states lifting stay-at-home policies and rising public displays of opposition to the policies.

"I think being in quarantine and being cooped up and just going crazy in the house, people are going to want to get out," CEO Greg Garland said, "and that should actually bring gasoline demand back pretty good."

The Phillips 66 senior management team -- which asserts that work-commutes comprise roughly 35% of U.S. gasoline demand -- sees businesses getting back to work as powering demand recovery.

Asked how, from a behavioral standpoint, Phillips 66 anticipated "coming out the other side of" COVID-19 fuel demand destruction, Executive Vice President, Refining, Robert Herman said that the company was "going to look for a pretty strong and pretty stable demand signal from the market, before we start ramping up units that might be idled right now."

Invoking an engineering metaphor and the latest weekly EIA report, Mandell said the East Coast (PADD1) market was signaling still much-reduced consumption of gasoline for the U.S. as a whole.

"We have the addition of a flywheel for gasoline, because PADD 1 is an import market," he said. "If you take a look at just the last DOEs, 160,000 b/d of gasoline came into PADD 1. That's about 25% ... of what typically comes in (at this time of year)."

"We won't overproduce and that will keep us from filling up ... so we don't have any concerns on clean products," Mandell added.

The company said that its exports of refined products -- which increasingly play a role in U.S. refiners' production profiles, particularly those to Central and South America -- averaged 160,000 b/d in the first quarter, 3,000 b/d higher compared to the fourth quarter of 2019, but it offered little else about that part of its business.

In a late-March conference call with analysts, Phillips acknowledged that term customers in Latin America -- who were expressing concern about possible demand impacts due to COVID-19 -- had begun asking about backing out of refined product cargo commitments.

Jeff Dietert, head of investor relations, noted on Friday that because Latin America was among world regions only recently affected by the pandemic, "we're seeing a little bit of weakness there."

"But it's really a holistic approach to demand overall that we're using as a guide to run our refineries at the rate that matches that recovery," he added.

*** Get instant updates on refinery unit outages as well as a complete list of planned and unplanned U.S. Refinery Maintenance with the OPIS Refinery Maintenance Report: Request more information

--Reporting by Beth Heinsohn, bheinsohn@opisnet.com;

--Editing by Frank Tang, ftang@opinset.com

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Analysis: Sweden Offers Potential Glimpse of Post-Lockdown European Demand

May 4, 2020

Swedish demand for diesel and gasoline in April was likely 10-20% lower year on year, OPIS has learned, offering a potential pointer to demand levels in other Western countries as they transition from sweeping lockdowns to combat the coronavirus disease 2019 (COVID-19) pandemic to less-restrictive measures.

Sweden has attracted some praise but mainly fierce criticism from around the world for its relatively "light-touch" measures to combat the pandemic that have allowed businesses, cafes and many schools to stay open.

Instead of pulling down the shutters on business life and social activities, the government and health authorities have asked citizens in the historically high-trust society to respect social-distancing guidelines while in public and to work from home if possible.

Similar measures now appear likely to be taken across European nations eager to restore economic activity, as infection rates fall and government budget deficits swell.

Johan Andersson, chief executive officer of the Swedish Petroleum and Biofuels Institute (SPBI), which represents Sweden's oil industry and collects consumption data, confirmed to OPIS that year-on-year road fuel demand in April had fallen to a far lower extent than in the rest of Europe.

Referring to declining demand for diesel and gasoline in April, Andersson said: "I've heard numbers for European countries between 30-70%. We are probably in the 10-20% region. This is based on conversations with our member companies who have told us that's likely to be the effect in April."

The pandemic and social-distancing measures have prompted sharp falls in public transport use, said Andersson, resulting in those unable to work from home opting to travel by car.

"I live 20 miles outside of Stockholm. I normally go by bus to the office, and those buses are now empty apart from transporting (healthcare workers)," he said. "People are being told not to use public transport, which of course leads to many more people driving themselves (into) the big cities of Stockholm, Gothenburg and Malmo.... That's having a massive impact on fuel consumption," Andersson added.

The SPBI will release its road fuel demand data for April in mid-May, Andersson told OPIS.

The institute's CEO was reluctant to engage in predictions for future road fuel consumption in Sweden, but noted the potential for domestic holidays to offer a fillip to demand.

"Quite a few industries are opening up again in May, which means that we should see more transportation, people driving.... I think we will see subdued demand for an extended period of time," said Andersson. "On the other hand, you can see that people are discouraged from flying on holiday this summer, which means that many will drive in Sweden for their holiday, so that could compensate."

Swedish diesel demand in March actually managed to defy the global pandemic and register a year-on-year rise, SPBI data show.

Retail sales of diesel in March nudged higher by 1.4 million liters, to 569.2 million liters, a 0.2% year-on-year rise. Gasoline sales in the same month were down 2.3% y-o-y to 223.4 million liters, but first-quarter gasoline sales were slightly higher than in Q1 2019, said the SPBI.

Andersson said he was "mildly surprised" that diesel demand rose in March, but pointed out that Sweden's more modest measures to combat the pandemic, such as closing universities and high schools, were implemented on March 15.

Furthermore, demand from Sweden's forestry and agricultural sectors was healthy, and citizens took advantage of plummeting prices to fill tanks, he suggested.

The less-exacting measures taken in Sweden will not spare the country from experiencing a crushing recession, the country's central bank said last week.

The Riksbank forecasts that the economy, which is heavily reliant on exports, will contract between 6.9% and 9.7% in 2020.

Despite the absence of a severe lockdown, Sweden's per capita COVID-19 infection rate is close to the European average and lower than in the U.K., but higher than in other Nordic nations and slightly higher than in the United States.

The government has taken a backseat in Sweden's handling of the pandemic, with the response being led by the country's Public Health Agency and its chief epidemiologist, Anders Tegnell.

Tegnell has argued that the country's approach to the pandemic is more sustainable, a view that received cautious backing from the World Health Organization (WHO) last week.

"If we are to reach a 'new normal,' in many ways Sweden represents a future model," said Mike Ryan, WHO's emergencies expert.

Sweden does, however, enjoy certain advantages over other countries in pursuing its present course of action. The country's population of 10 million people is dispersed over a landmass of 450,000 square kilometers. By contrast, the more urban U.K. has a population of 65 million people and a landmass of 242,000 square kilometers.

Moreover, social-distancing is easier to achieve in Sweden given that more than half of all households there are single-person.

Get daily expert analysis of the Northwest Europe and Mediterranean jet fuel, ULSD and gasoil markets withOPIS Europe Jet, Diesel & Gasoil ReportTry it free for 21 days

 

--Reporting by Anthony Lane, alane@opisnet.com;

Editing by Barbara Chuck, bchuck@opisnet.com

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India March Transport Fuel Exports Jump as Virus Cripples Demand

May 4, 2020

India posted an increase in transportation fuel exports in March due to a slump in domestic demand amid lockdown measures put in place by Indian authorities to curb the spread of the coronavirus disease 2019 (COVID-19).

The nation went on a countrywide 21-day lockdown on March 25, which has now been extended to May 18, leading to concerns of further fuel demand destruction in the coming weeks, market sources said.

A total of 4.588 million mt of transportation fuels (gasoline, diesel, jet fuel) were exported in March, compared to 3.938 million mt in February, or up 16.5% month-on-month, data from Petroleum Planning & Analysis Cell (PPAC) showed.

Gasoline exports rose 11.1% on-month in March to 1.141 million mt, whereas local demand in the same period fell 14.1% to 2.156 million mt, the lowest since February 2018, PPAC data showed.

Diesel shipments gained 24% from the previous month to 2.958 million mt.

Domestic consumption for diesel was hit hard due to its duality of uses in both industry and transportation sectors. It fell 21% from the previous month to 5.651 million mt, the lowest since September 2016, according to the PPAC data.

Jet fuel exports in March, on the other hand, shrunk 7.04% from the previous month to 488,000 mt despite bearing the brunt of the demand destruction with the suspension of both domestic and international flights.

That comes as refiners were unable to find homes for their export cargoes with COVID-19 also crippling global demand.

This is also the first time in at least five years that jet fuel in March recorded a month-on-month decline.

"Exports in March are usually higher compared to February as refiners try to clear as much of their inventories as possible before the close of financial year," a trader said.

In the past five years, from 2015 to 2019, March exports recorded on-month increases of 14.4%, 24%, 50.8%, 16.7% and 50.2%, respectively, IHS Markit OPIS records showed.

Reference a single daily index for buying and selling jet fuel and gasoil profitably in Asia with the OPIS Asia Jet Fuel & Gasoil Report. Try it free for 21 days

--Reporting by John Koh, John.Koh@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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April Motor Fuel Costs See Unprecedented Consumer Savings

April 30, 2020

April was a cruel month in the petroleum supply chain thanks to coronavirus disease 2019 (COVID-19)-inspired shelter-in-place requirements as well as record crude oil output from Saudi Arabia, Russia and the United States. Some number-crunching by OPIS suggests that it easily stands as the least expensive month in the 21st century in terms of gasoline costs.

Using the most recent Energy Information Administration (EIA) numbers and the average unleaded gas price in a cost equation, OPIS calculates that the total April motor fuel bill was just $12.4 billion, or some $20.7 billion beneath the April 2019 cost.

That assessment, however, may represent an overstatement. Trading companies put away extra gasoline early in the month to take advantage of an unprecedented contango play for storage, and the amount of fuel pumped was probably lower than EIA numbers, which merely measure gasoline moving from reportable to non-reportable storage.

And average prices were easy to beat. Many markets regularly saw aggressive Big Box stores such as Costco sell fuel for 35-50cts/gal below market averages. The distance between the most aggressive street prices and the average street price was 50cts/gal in a number of states, and the gap often topped $1/gal in California.

gas cost 0501 graph

The factor clearly most culpable for the record cheap month was demand destruction. EIA statistics issued so far suggest the lowest monthly consumption since January 1971 when inclement weather pushed demand down to 5.264 million b/d. Records suggest that one has to go back to 1967, several months ahead of the "Summer of Love," to find an April where consumption was below this month's likely final figure. In both cases, the standard motor fuel in the country was an 89-octane leaded gasoline.

May is almost certain to begin with some higher numbers. By midday Thursday, most U.S. gasoline blendstocks were up by about 14cts/gal since Monday's closing numbers, and indeed the average retail price moved up 0.5cts/gal.

Some other highlights in a month that may set a low standard for years to come:

  • For the first time in the history of OPIS, rack prices of below 10cts/gal were recorded for several consecutive days. Most of the confirmed prices were for E10 in states that included the Dakotas, Colorado and a few scattered Great Lake locations. Aggressive pricing to clear winter gasoline was a major factor in the fire sales.
  • The difference between major oil company rack offerings and unbranded prices was off the charts, particularly in West Coast markets. Even as April exited, some majors priced their regular more than 25cts/gal above unbranded numbers in California, and for a while, that distance was 50-70cts/gal.
  • Crude oil trading on Monday, April 20 saw the eyes of the world descend upon the NYMEX, as negative numbers wreaked havoc with small speculators and with back office software on several continents. OPIS' crude oil database saw occasional negative posted prices during the last third of the month, with particular weakness for Wyoming, North Dakota, Montana, Texas and the Ohio/Pennsylvania Utica Shale.
  • Not until the last few days of April did any regional spot markets trade above NYMEX RBOB. At one point, Chicago CBOB traded for about a dime and east-of-the-Rockies spot markets remained below futures on all business days in April. Only Los Angeles and San Francisco managed to trade at modest basis premiums in the final days of the month.
  • The cheapest state? Usually that honor goes to South Carolina, Missouri or Oklahoma, but in April 2020, Wisconsin took the prize.  The state has a minimum mark-up law, but points such as Green Bay, Madison and Milwaukee were dumping grounds for PADD2 refineries looking to move conventional or reformulated barrels. Numerous days saw rack prices for finished gasoline at less than 25cts/gal, even as the NYMEX was more than two times higher. The average unleaded regular price in Wisconsin in April 2020 was $1.31/gal, or $1.48/gal beneath the April 2019 number.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatilityTell Me More

--Reporting by Tom Kloza, tkloza@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

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Refining Margins for VLSFO in Rotterdam in Negative Territory

April 30, 2020

Refining margins for very-low-sulfur fuel oil (VLSFO) in the trading hub in and around Rotterdam have plummeted to negative territory for the first time this year amid a decline in demand caused by the coronavirus disease 2019 (COVID-19) pandemic, OPIS data shows.

The crack, a measure of the spread between the flat price versus rolling Brent, for VLSFO barges, loading in Rotterdam, was at minus 92cts/bbl on April 29, using a density converter of 6.35.

"I'm not surprised to see VLSFO cracks narrowing as stocks were building prior to January, then demand started to fall due to the virus but production increased, so VLSFO supply is clearly outpacing demand," said Anton Shamray, senior research analyst at global bunker trading company Integr8 Fuels to OPIS Thursday.

As crude prices seem to be going up slightly, the ample supply of VLSFO and the falling cracks will likely slow down production in the near future, Shamray said.

"Demand for marine fuels is indeed weak globally compared to say the fourth quarter of 2019 and we are hearing it's down 7-10% this year to date," he added.

Marine fuel demand is estimated to be down by around 270 million metric tons annually to date.

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--Reporting by Stacy Irish, stacy.irish@ihsmarkit.com;

--Editing by Paddy Gourlay, patrick.gourlay@ihsmarkit.com

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Trade Summary: April LPG Trade Falls 23% to March, Chem Intake by 19%

April 29, 2020

In northwest Europe, LPG cargo trade over the course of April began to react to the coronavirus disease 2019 (COVID-19) related lockdowns across Europe and resulting fall in demand for products and goods. The effects on LPG were latterly felt the most in the petrochemical feedstocks sector and followed an abrupt fall in demand for distillates, mainly gasoline.

Overall LPG trade was down by an estimated 23% compared to March, with intake as petrochemical feedstock down by 19% at 515 kt. Despite the intake fall, the level was considered fairly robust, as the same period saw more severe demand falls in other products sectors such as gasoline and naphtha.

The reduction in LPG imports, particularly the U.S. Gulf Coast, to the feedstock pool was clear in the figures for local demand from that sector. A breakdown of the origin of LPG intake as feedstock in April saw 65% coming from the North Sea, up from 45% in March, 22% from the U.S. East Coast, up from 17% last month, 9% from the U.S. Gulf Coast, down from 32% and 4% from the Russian Baltic, down from 6%.

By the start of April, propane's spread to naphtha had already flicked to positive, as naphtha demand was deeply affected by a demand crash for gasoline.

Starting the month at plus $49/t, the spread hit a wide plus $131/t by April 21, later narrowing slightly. For comparison, March had seen propane/naphtha open at minus $105/t.

For LPG, the time lag from end-users rolling back poor demand into feedstock intake was estimated at around two weeks. Import flows started to reduce by mid-April, with at least four TOT re-sales taking place -- all for May dates.

At or about the same time, a number of cargoes initially on the horizon for Europe subsequently shipped to other destinations, the last to do so in the final days of April.

By mid-April, demand for ethylene fell substantially enough to pull spot prices to half the level of the term price, the latter set at 720 euros/t for the month. Underlying demand had already reduced the term price in April by 22% from its March level, at 920 euros/t. Ethylene exports, which reflected the implied local demand fall in March, fell to zero for April. March exports had spiked to 90 kt -- some four times higher than a normal month.

LPG exports out of the region were 50% up on March, with cargoes moving to the U.S. East Coast, Morocco and to India. Exports to Italy and to Turkey did not appear. The retail and refining sector intake fell by more than half to an estimated 130,000 tons.

Gain greater perspective on global spot prices for naphtha, propane and butane.

OPIS developed the pricing in our Europe LPG & Naphtha Report to reflect the market’s desire for an unbiased methodology and accurate spot price benchmark in northwest Europe and the Mediterranean.

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--Reporting by Dermot McGowan, dmcgowan@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

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COVID-19: Baltic Diesel Heads for Storage Hubs as Europe Under Lockdown

April 29, 2020

April exports of ultra-low-sulfur diesel from key Baltic ports have discharged into storage tank farms, outside the typical import hubs, as European demand plummets amid a global restriction of population movement, according to market sources and OPIS tanker tracking data.

Over the course of April, oil tankers hauling diesel cargoes from Baltic ports headed as far as Puerto Rico. Scandinavia emerged as a big importer, with sources saying demand there is mainly into caverns for storage, first reported to OPIS as early as end-February.

A long/large range (LR) type 2 vessel, the Cielo di Londra, with a 65,000-ton diesel cargo, on charter to an unknown party, headed to Puerto Rico, after loading in Primorsk on April 6. The tanker reached its destination on April 24, the data show.

About 300,000 metric tons of Baltic diesel went to Sweden this month, while Norwegian, Danish and Finish ports saw an inflow of about 200,000 tons, according to broker data. The three countries have not taken Baltic volumes previously, according to OPIS data.

The larger LR tankers have been booked as floating storage units, according to shipbroker reports, although demand for smaller tankers as inventory storage is lower in comparison. But demand for the larger units has drained the supply of available vessels for spot charters and boosted clean tanker rates across all tanker classes, according to market analysts.

"If indeed about 8-10% of all clean tankers are used for storage now, that removes a lot of capacity and pushes all freights higher," one distillates source told OPIS.

Daily time-charter earnings to transport a refined oil product cargo to the French port of Le Have from Primorsk in Russia, the so-called TC9 route, jumped to $71,782/day on April 27. That's the highest since July 2018 when rates started to be assessed along this route, Baltic Exchange data show.

Overall, the largest importer in April was Germany, taking about 350,000 tons, mainly into Hamburg. But the usual buyers, like France and the U.K. took only a fraction of their typical demand. U.K. imports totaled about 150,000 tons, while earlier this year monthly tallies stood between 400,000 and 600,000 tons.

Only two 30,000-ton cargoes were seen heading to France, where demand spiked earlier in January this year, following country-wide industrial action. This resulted in imports of Baltic diesel cargoes of almost 700,000 tons that month, according to IHS Markit Commodities at Sea data.

Total vessels booked to ship diesel cargoes from all Baltic ports in April, including Primorsk, Saint Petersburg, Ventspils, Ust-Luga and Vysotsk, could add up to just under 2 million tons, but with loading delays and failed tanker bookings, volumes have added up so far to only 1.6 million tons. The port of Primorsk is set to export about 1.41 million tons of diesel to date, slightly under the planned 1.57 million, according to initial loading program information seen by OPIS.

The May loading program for diesel shipments ex-Primorsk shows a 10% month-on-month decrease for planned loadings. That's still about 60% higher from May 2019 levels of 1.42 million tons, according to OPIS data.

TRACKING COMMODITY CARGOES HAS NEVER BEEN EASIER.

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--Reporting by Paulina Lichwa-Garcia, paulina.lichwa-garcia@ihsmarkit.com;

--Editing by Rob Sheridan, rob.sheridan@ihsmarkit.com

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More Subzero Price Clauses Make Their Way Into Refined Products Trades

April 28, 2020

Several other oil companies have followed ExxonMobil's lead and inserted language in bulk contracts that specifically outlaws negative prices for gasoline, diesel, heating oil and jet fuel. ExxonMobil was the first company to employ these clauses, and while at least one major commodity trading house rejected the terms, OPIS sources say that other multiple counterparties have agreed to the language.

The move comes less than 10 days after a wild Monday session for an expiring WTI contract on the CME led to transactions that briefly dipped to negative $40/bbl.

A number of U.S. bulk markets typically are fixed at "basis discounts" that call for delivery of fuel versus a NYMEX reference month.

This month, for example, it has not been unusual to see spot deals for Chicago CBOB at discounts of 43cts/gal to 43.5cts/gal off NYMEX RBOB. RBOB prices briefly dipped below 40cts/gal this spring, so theoretically, there are worries about negative numbers as a result of traditional contract arithmetic.

Similarly, Gulf Coast distillate has traded for as much as 31cts/gal under NYMEX ULSD contracts and jet fuel discounts of 30-33cts/gal have been recorded since the coronavirus disease 2019 (COVID-19) wreaked havoc on demand.

In addition to ExxonMobil, OPIS hears that Phillips 66 and Valero have implemented the "no negative" clauses. If RBOB or ULSD futures get pounded, wet barrel numbers at the Gulf Coast or in a Chicago FOB point could flirt with less than zero.

The language viewed by OPIS suggests that under no circumstances would a seller of product have to remit money to a buyer, regardless of the arithmetic between the futures settlement and the basis discount. Unprecedented volatility is cited as is the motivation with sellers realizing that wild futures swings could result in a transaction price below zero. If that happens, the buyer needs to receive the product and the seller is obligated to deliver full contracted volumes. Terms dictate that "in no event" will a seller be liable to pay any amount to the buyer for the buyer's purchase of such product.

Example: If a refiner sold some ULSD on Colonial Pipeline at 30cts/gal under June ULSD futures and those futures settled at 29cts/gal, the contract price would hypothetically be a negative 1cts/gal. Terms would treat the final price as zero, however.

Terms go on to explain that if a final price is less than zero, the buyer remains obligated to receive, and the seller remains obligated to deliver, the full contracted volume of fuel. In no event will the seller be liable to pay any amount to the buyer for the buyer's purchase of the product.

Clauses generally note that the buyer will be required to pay secondary or incremental costs, including freight, storage, handling and other costs applicable to the deal.

OPIS is not aware of any transactions which have yet resulted in negative prices for any refined products, but the plunge into negative territory by WTI puts such possibilities in play.

"Did you ever think we'd be having this kind of conversation about prices?" one products broker asked OPIS, observing that Monday April 20 was a game-changer for traders on both sides of the ledger.

Access live gasoline, diesel and jet fuel spot pricing throughout the trading day.

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--Reporting by Tom Kloza, tkloza@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

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Tupras to Stop Production at Izmir Refinery: Sources

April 28, 2020

Turkish refiner Tupras is expected by OPIS sources to halt production at its 230,000-b/d Izmir refinery due to weak demand for jet and diesel resulting from the coronavirus disease 2019 (COVID-19) pandemic.

The company has already cut runs at its 113,000-b/d Kirikkale refinery by 50%, sources say.

Tupras declined to comment when contacted by OPIS.

Tupras operates the Izmit, Izmir, Kirikkale and Batman refineries in Turkey, which have a combined capacity of 789,000 b/d.

The company has revised its 2020 production forecast down to 24 million metric tons from 28 million mt, and it has also lowered its sales estimates from 29 million mt to 25 million mt due to a fall in demand.

"Our 2020 expectations, which were disclosed on Feb. 12, are revised due to the global pandemic's negative impact on petroleum products demand and margins, as well as the drop in Brent oil prices," the company said in a filing posted on the Public Disclosure Platform (KAP) website.

"As a result of these changes, our 2020 capacity utilization expectation is revised from 95-100% to 80-85%," it said.

The company's statement revised down its net refining margin forecast to $3-4/bbl from $4.5-5.5/bbl.

Tupras said that the revised forecast was predicated on demand for oil products beginning to return by June, with "normal economic activity resuming from August."

Fitch Ratings revised its outlook for Tupras to negative from stable due to lower demand for fuels caused by pandemic-related lockdowns.

Get daily expert analysis of the Northwest Europe and Mediterranean jet fuel, ULSD and gasoil markets with OPIS Europe Jet, Diesel & Gasoil Report Try it free for 21 days

 

--Reporting by Stacy Irish, stacy.irish@ihsmarkit.com;

--Editing by Anthony Lane, alane@opisnet.com

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Negative Oil Fears See New Clause Inserted, Highlights Netback Pricing Flaw

April 28, 2020

The unprecedented negative price settlement on U.S. crude futures last week has raised the specter of similar incidents for billions of dollars of oil products that are determined by way of netback, forcing sellers to include a negative price clause in their contracts, market sources said.

This previously envisaged scenario is now a concern in the face of two opposing forces -- crumbling demand and soaring freight -- that has led to free-on-board (FOB) prices exposed to the vagaries of the shipping market, which is now a kingmaker in the oil trading business. This is particularly so in the Middle East, whose price is derived from established benchmarks in another location.

"The netback model starts with a depressed Singapore product price and then subtracts a soaring freight rate to derive an FOB Arab Gulf (AG) price," said John Driscoll, a long-time oil trader and analyst who now lectures on energy risk management at the Singapore Management University, adding that the question now is how low the netback value may go.

Driscoll does not think that it would turn negative as was the case in North America.

Price assessments for millions of barrels of Middle East jet fuel and gasoil are done by way of netbacks, that is deducting a freight element from established FOB Singapore prices. This would have been fine, if that was the natural trade route for the AG fuels market.

However, it is not the case anymore compared with around 30 years ago when these principles were first established by price reporting agencies, market sources said.

Trade data and shipping fixtures clearly show that the bulk of middle distillates produced in the Middle East, which has seen an explosion of refining capacity in recent years, are shipped West. Diesel and jet fuel are regularly exported to East and West Africa, as well as in ever growing volumes to Europe, which has been scaling back its refining capacity.

"The relevance of the Singapore netback model has declined while new Gulf refining capacity came onstream; hence, standalone FOB (AG) benchmarks for the Middle East make more sense and better reflect values in multiple export markets," said Driscoll.

"However, traders get comfortable with the price models they know and generally resist change. It may be time for a wake up call," he added.

For example, on April 22 jet fuel prices fell to a low of $14.86/bbl in Singapore, which brought it dangerously close to the freight costs used to calculate the netback AG price, which on that day slumped to $8.40/bbl, according to data from IHS Markit OPIS.

While netbacks used to calculate delivered prices are less likely to run afoul of the soaring freight but such FOB prices for Northeast Asia are also exposed to this issue, especially if the natural flow for the product is the U.S. west coast, market sources said.

Clean freight costs have gone through the roof after numerous tankers were snapped up as floating storage in the face of a supply overhang. For example, the rate for an LR2 tanker carrying 90,000 mt of clean product from the AG to Europe jumped to $8.15 million on Tuesday from $3.7 million on March 24, fixture lists show.

It is unclear as to how the industry would react once the dust settles and the global economy gets back on an even keel following the coronavirus disease 2019 (COVID-19) pandemic.

For now, however, sellers are protecting themselves by inserting a negative price clause in contracts so that they don't end up in the unforeseen situation of having to pay the buyer to take away the fuel that they have sold.

"They are in place to prevent having to pay lifters for lifting the cargoes," said one trading source.

The terms of the contracts are such that if the price drops to negative, it would be reflected as zero in the deal.

Oil are typically sold on a forward basis and is priced off published benchmarks or futures contracts. The pricing period is decided between the parties involved and could range from a typical short two-days on either side of the loading date to an average of the whole month of loading.

Some companies avoid this hassle, which is usually done as a hedge to volatility, and simple buy on an agreed outright, or flat, price.

The oil industry is still coming to grips with the negative settlement chalked up April 20 after May WTI settled down around $56/bbl at negative $37.63/bbl.

The now-expired May WTI soared to finish at $10.01/bbl the following day.

The new front-month June contract lost $4.16/bbl, or 24.6%, to settle at $12.78/bbl on Monday and last traded down $1.06/bbl to $11.72/bbl at around 6:40 pm Singapore time. The market took a beating after U.S. Oil Fund, the largest oil exchange product, said it would shift its holdings to later-dated contracts and sell its June positions.

The latest sharp decline on WTI has raised fears once more that when the front-month contract nears expiry it may again test the negative territory. The negative settlement had led to huge losses among retail investors who were trading this futures contract.

"Those in the physical oil business generally heed supply chain limits and constraints. Oil is a finite commodity and at the end of the day oil moves from point A to point B," said Driscoll, adding that non-commercial investors who traded deliverable futures without physical storage were especially vulnerable.

WTI's historical dive into negative territory may ultimately force traders to reconsider the risks of futures markets. Despite increases in pipeline capacity, line reversals and U.S. President Barack Obama's removal of the crude oil export ban in 2015, Cushing's landlocked status may drive price dislocations in oversupplied markets, the sources said.

"Waterborne benchmarks like Brent and Oman offer more liquidity," he said.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com ;

--Editing by Carrie Ho, Carrie.Ho@ihsmarkit.com

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Australia May Allow Temporary Fuel Spec Change as Lockdown Batters Demand

April 28, 2020

Australia may temporarily allow refiners to blend excess jet fuel into other oil products after local aviation fuel demand plunged by 90% amid the ongoing coronavirus disease 2019 (COVID-19) lockdown measures, the Department of Industry, Science, Energy and Resources said Tuesday in an emailed response to questions.

"The government is currently working with industry on applications to
temporarily vary some aspects of the national fuel standards. The aim ... will be to provide some immediate relief to local refineries by allowing them to blend excess jet fuel into other products, easing their storage burden," it said.

"If required, a converted product will only be sold to industrial facilities
that can handle the modified fuel, such as mine sites," it added.

Domestic and international air travel has been among the industries to bear the brunt of lockdown measures.

Virgin Australia, the nation's second largest airline, announced on April 21 that it had entered into voluntary administration. The airline slashed 90% of its domestic flights and grounded 125 aircrafts on March 25, a day after Prime Minister Scott Morrison announced a ban on overseas travel.

Australia's four refiners have reduced output as federal and state limits on non-essential travel to slow the spread of COVID-19 severely curtail fuel demand.

Melbourne-headquartered Viva Energy plans to shut down a residual catalytic cracking unit (RCUU) and other related facilities at its Geelong refinery in Victoria, as reported by IHS Markit OPIS on Monday.

The other refiners, Mobil Australia, Caltex Australia and BP Australia, have also taken measures to reduce output, as previously reported.

Get an overview of fuel pricing and margin trends in the Australian market with the OPIS Australian Oil Market Price Report. Learn more.

 

--Reporting by Trisha Huang, Trisha.Huang@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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Once-Frenzied Downstream Oil Consolidation Slows, Observers Say

April 27, 2020

The uncertainty and unprecedented slide in fuel demand resulting from the coronavirus disease 2019 (COVID-19) has cooled the once red-hot downstream petroleum consolidation, according to some observers.

An industry consultant said most of the deals he is familiar with have been postponed 30-60 days.

"The real issue will be values when things pick up again. Equities are off about 25% and private markets follow but more slowly," he said. "The driver behind all deals is what does a recovery look like. It's not as bad for our industry, but we don't see a V-shaped recovery on the consumer (gasoline) side." Though some states are gradually lifting stay-at-home orders, which should increase fuel demand, he said production "is going to bottle-neck" and demand won't soon return to the pre-pandemic normal. People will still be practicing social distancing to keep the virus at bay, he said.

A recent case in point is Alimentation Couche-Tard Inc., which shelved its widely reported $8.6 billion purchase of Caltex Australia Ltd. In a statement, Couche-Tard confirmed that due diligence for the transaction has been "substantially completed" and Caltex is a "strong strategic fit for Couche-Tard and an important component of its Asia Pacific expansion strategy."

The convenience store giant also said there are "significant opportunities to be realized from combining both businesses," and it remains "highly interested" in the transaction. But because of COVID-19, "the current situation in the world is highly uncertain." Brian Hannasch, president and CEO, said Couche-Tard plans to go forward with the deal when there is "sufficient clarity as to the global outlook."

Steve Griffin, managing partner of Downstream Energy Partners, an advisory firm serving petroleum marketers, said the downstream M&A market is "recalibrating due to the virus," prompting many questions, for example, on how the pandemic will affect transaction multiples. Those multiples had been "high," but marketers wonder if "there will be a retracement," he said.

There also is concern on whether the M&A activity will return to the rapid pace before the virus spread.

"Will the new EBITDA be EBITDAC (earnings before interest, taxes, depreciation, amortization and coronavirus)?" Griffin wondered. "For now, we are left anxious and with bated breath."

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Donna Harris, dharris@opisnet.com;

--Editing by Barbara Chuck, bchuck@opisnet.com

Copyright, Oil Price Information Service


Middle East Gulf Jet Fuel Prices Eye Negative Territory Plunge

April 24, 2020

Jet fuel prices in the Middle East are likely to trade in single digits and could even flip negative due to widespread demand destruction, according to market sources.

The cost of jet fuel loaded FOB in the Middle Gulf plummeted to $8.45/bbl ($66.67/metric ton) this Wednesday, OPIS Asia report shows, compared to $82.85/bbl ($653.7/ton) same time last year. OPIS calculates the cost of FOB Middle East Gulf jet fuel as a freight netback from FOB Singapore quotes.

IHS Markit forecasts Middle East Gulf jet fuel will remain in single figures for dollars per barrel during the next couple of weeks, depressed by nosediving Middle East crude prices. Still, Matthew Chew, research and analytics manager at IHS Markit, did not rule out negative jet pricing.

"Daily fluctuations and trading play could cause [jet fuel prices] to drop lower like we have seen for WTI futures earlier this week, which fell into negative territory," Chew said on Friday.

OPIS Asia team pegged May jet fuel cracks in Singapore at negative $2.03/bbl compared to gasoil cracks at $5.37/bbl on Friday.

"I can definitely see Middle East jet fuel prices plummet to negative figures," a trading source told OPIS, as better refining margins are likely to incentivise local refiners to maximise diesel production compared to jet fuel.

A number of Middle Eastern refineries, such as the 537,000 b/d Ruwais refinery and the 466,000 b/d Mina-al-Ahmadi refinery, currently have units undergoing maintenance.

"Refineries have two options - cut runs or pay someone to take the jet away. If these refineries do come back online, they will only produce diesel," the source said. Another source told OPIS that this is already happening in the Middle East.

Middle Eastern refiners typically sell jet fuel to Europe, as the region is a net importer, but the coronavirus disease 2019 (COVID-19) outbreak has decimated European jet fuel demand and local storage is filling up. Meanwhile, soaring demand for floating storage has boosted rates, with freight to transport a 90,000-ton jet fuel cargoes to Europe from the Middle East Gulf to $86/metric tons, compared to $20.3/metric ton same time last year, according to shipbroker data.

Market consultancy JBC Energy noted negative jet prices would only be artificial and driven by soaring freight costs. "That does not mean that actual volumes leaving Middle East refineries will really receive such a price," representative of the JBC Energy Research Centre told OPIS on Thursday.

IHS Markit forecasts global jet fuel demand to decline by 65% to 2.9 million b/d in the second quarter compared to same time last year.

Reference a single daily index for buying and selling jet fuel and gasoil profitably in Asia with the OPIS Asia Jet Fuel & Gasoil Report. Try it free for 21 days

--Reporting by Selene Law, selene.law@ihsmarkit.com;

--Editing by Rob Sheridan, rob.sheridan@ihsmarkit.com

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COVID-19: S. Korea Crude Runs at 5-month Low; Local Demand at 4-Year Trough

April 23, 2020

South Korean refinery runs in March fell to a five-month low as the coronavirus disease 2019 (COVID-19) sent domestic fuel consumption tumbling to a near four-year low.

Crude throughput last month fell 4.3% to 2.826 million barrels a day (b/d), the lowest since October 2019, data released on Thursday by the Korea National Oil Corp (KNOC) showed.

Domestic demand for overall petroleum products slid 7.4% to a total of 71.347 million bbls, the smallest since April 2016, according to the KNOC data.

The runs are expected to fall further as fuel demand across the globe faltered on the pandemic and local refiners undertake maintenance works, analysts said.

"The COVID-19 hit consumption and forced refiners to cut runs. The runs would fall further on turnarounds and as demand is unlikely to recover soon," said an industry analyst based in Seoul.

Hyundai Oilbank (HOB) started on April 15 turnarounds at the 360,000 b/d No. 2 crude distillation unit (CDU) and a 53,000 b/d fluid catalytic cracker (FCC) at the Daesan refinery as scheduled, a source with direct knowledge on the matter said. The maintenance was scheduled to complete on May 7.

In mid-March, GS Caltex shut its 155,000 b/d No. 2 CDU and other facilities such as a 90,000 b/d naphtha splitter and an 81,000 b/d catalytic reformer for maintenance, which is set to last until the end of April, as reported earlier.

Refiners worldwide have slashed runs as the COVID-19 pandemic dampened consumption of refined products, especially transportation fuels.

South Korea was not an exception.

Jet fuel consumption shrank to 1.138 million bbls, the lowest on the data going back to 1997. Gasoline and gasoil demand skidded 15.1% and 11.9% on-year to 5.792 million bbls and 12.993 million bbls, respectively.

The refiners have focused more on exports as local demand faltered.

Exports of refined product increased 21.8% to 48.327 million bbls. Overseas sales of jet fuel rose 12.4% to 9.826 million bbls and gasoil shipments rose 32.2% to 18.2 million bbls.

The analyst doubted if exports could stay firm as the COVID-19 has led to severe demand destruction in just about every country as billions of people were told to stay at home to curb the spread of the virus.

"Exports are likely to fall, given lack of demand. Turnarounds will also cut exports," he said.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Jongwoo Cheon, Jongwoo.Cheon@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

Copyright, Oil Price Information Service


Analysis: RBOB Futures Gain Advocates in Spread Play Versus Diesel

April 22, 2020

Much of the daily volume in NYMEX products trading revolves around inter-product spreads, and the "spread du jour" today and for many other spring days looks like the buy RBOB/short ULSD play. Even before today's Energy Information Administration report, that spread strategy was attracting fans and it may get a further boost from today's data as well as future EIA reports through May.

The notion of a more-pessimistic outlook for diesel was raised in an OPIS webinar  yesterday that featured IHS Refining Expert Debnil Chowdhury and OPIS veteran analyst Tom Kloza. Chowdhury noted that refiners appear to have "gotten an accurate handle" on spring demand and had adjusted gasoline yields accordingly. But he stressed that the worst of diesel demand destruction had yet to arrive in North America, with some additional risk tied to exports.

Kloza added that OPIS demand surveys were no longer suggesting additional volume losses for gasoline, but the same surveys saw attrition for diesel.

Earlier this spring, ULSD futures occasionally commanded a premium of about 40cts/gal to RBOB. A glance at April 22 futures shows those spreads have narrowed substantially. As of Wednesday afternoon, May diesel futures fetched a 15.5ct/gal premium to May RBOB, with the spread narrowing to 14cts/gal in June and spending the rest of the summer at 15.5-17cts/gal.

In the webinar, Kloza noted that because futures markets typically trade 50 or even 60 times the volumes witnessed in wet markets, the futures market can "create its own ecosystem." That ecosystem often drives more volume than outright purchases or sales by funds, speculators or commercial interests.

Margins are dramatically reduced for spread plays, and transactions reflecting spreads can result in much more dramatic moves than would otherwise occur.

EIA data implies that refiners may be producing too much diesel. Production of 15-ppm diesel was 4.63 million b/d last week, or relatively close to maximum levels seen last summer and autumn. Overall distillate production was over 5 million b/d.

Domestic diesel demand was just 3.128 million b/d and it's not unusual for global distillate markets to reach a nadir in May. Two weeks ago, EIA presented the lowest distillate demand number of the 21st century, but odds suggest some May weeks may dip even lower.

A primary risk comes in the diesel export market. Two of the early weeks in April saw diesel demand top 1.5 million b/d with most of the fuel departing for Central and South American locations. Outbreaks of the coronavirus disease 2019 (COVID-19) in the Southern Hemisphere may be more severe as countries south of the equator move into winter and diesel use in countries from Mexico south to Cape Horn is threatened. Exports actually plummeted in the week ending April 17 to just 860,000 b/d, reflecting two fewer cargoes per day leaving Gulf Coast refineries.

Another likely depressant for diesel comes via less long-haul trucking and a nosedive in fuel usage from buses. Plenty of stories are documenting food and medical supplies crisscrossing the country, but commerce in automobiles, furniture, household white goods, etc., has plummeted.

Meanwhile, the fleet of 480,000 U.S. school buses that transport 26 million children daily is for all intents and purposes idle with no prospect of fuel usage into summer and perhaps beyond. The same dour forecast can be made for the 96,000 or so transit buses and the 35,000 motor coaches that move travelers and tourists. Toss in the loss of a substantial portion of diesel used in various segments of the shale business, and you have prospects for total diesel demand (domestic and exports) of less than 3.5 million b/d.

Gasoline demand, on the other hand, could easily rise by 50% or more if COVID-19 cases wane ahead of the last three months of the "driving season."

OPIS volume data suggest that motor fuel demand is running just under 5 million b/d, so a 50% increase would merely take consumption up to 7.5 million b/d.

It's hard to find any instance where U.S. refiners were challenged by a 50% demand increase without repercussions in the distribution system. Current gasoline inventories of 263 million b/d represent about 53 days' supply at 5 million b/d, but that would get sliced to under 34 days' supply if demand picked up to 7.75 million b/d.

All of these assessments may represent a "blue sky" outlook for gasoline and a "gray sky" outlook for diesel. But there are veteran spread traders who believe that a long RBOB/short ULSD strategy for the next 90-100 days may represent one of the better opportunities of 2020.

OPIS DemandPro provides actual retail sales data collected directly from station operators. Gain the advantage in your market by knowing local gasoline sales volumes at all types of sites, including chains, new era marketers and branded retailers. Request a demo

 

--Reporting by OPIS staff;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

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China's March Crude Runs Fall; May Rebound in April

April 21, 2020

China's crude throughput in March fell as the coronavirus disease 2019 (COVID-19) hurt domestic consumption but refinery runs may rebound next month on post-pandemic demand recovery.

Chinese refiners processed 50.04 million mt of crude oil in March, or 11.83 million barrels a day (b/d), down 6.6% from a year earlier, according to data from the National Bureau of Statistics (NBS). The daily processing volume was 2.4% lower than 12.12 million b/d in the January-February period.

The NBS did not disclose the breakdown for January and February.

Crude runs, however, were predicted to increase on-month in April as local demand was recovering, analysts said.

"Refinery runs are expected to increase month-on-month bases with downstream demand showing signs of recovery, although the throughput will still see declines on year-on-year basis," said Sophie Fengli Shi, principal analyst at IHS Markit in Beijing.

China has already eased measures to control the COVID-19. Earlier this month, the government has ended its lockdown of Wuhan, the epicentre of the virus.

Gasoil demand picked up with many enterprises resuming logistical operations and spring ploughing starting in some regions. Falling gasoline prices also prompted more drivers to use their cars.

The government last month also said it will not cut domestic oil product prices further after global crude prices fell below $40/bbl, the floor for the nation's product pricing system, as OPIS reported earlier.

That encouraged local refiners to raise runs, analysts and traders said.

Still, crude throughput in the country may not post annual growth soon due to the steep demand fall already registered, they said.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

 

--Reporting by Jongwoo Cheon Jongwoo.Cheon@ihsmarkit.com;

--Editing by Hanwei Wu, Hanwei.Wu@ihsmarkit.com

Copyright, Oil Price Information Service


Analysis: State Budgets Ruined by Lost Fuel Tax Revenue

April 20, 2020

One critical element of the gasoline demand destruction is that state revenues collected from fuel taxes were sharply lower in March, and April is shaping up to be much worse.

Lost gasoline tax revenue is just one spoke in a wheel of multiple avenues where state budgets are taking a hard hit over the past six to eight weeks.

Based on 2019 taxable gallons and 2020 OPIS estimated volumes, average state tax losses year on year averaged 17.5% in March with losses in revenue coming in as high as 25.7%. April estimates for lost tax revenue average 45% with multiple states taking in less than half what they did in April 2019.

It's no surprise that California saw the biggest tax hit in March, because it was one of the first states to implement stay-at-home orders to help combat the spread of coronavirus disease 2019 (COVID-19). In March 2019, California collected taxes on about 1.3 billion gal of fuel sold, but OPIS estimates that taxable gallons totaled less than 961 million in March 2020. Overall that adds up to a roughly $180 million loss in tax revenue, and April losses are shaping up to be almost double the lost revenue, with OPIS calculating a 51.4% in fuel tax collections, or $356.87 million.

California can also be a bit different than other states because the state imposes a 2.25% sales tax, and some municipalities have a local sales tax, said James Allison, public affairs and member services manager for the California Fuels and Convenience Alliance.

While each municipality may have a different tax structure, Allison said that on average the figure works out to be about 3.62cts/gal. That revenue from local taxes can be used for road repairs, public health and more, Allison said.

"We likely won't know the tangible impact for localities this has until well after the crisis has passed. Suffice it to say, however, it will almost assuredly hit the urban, populous areas of the state much more heavily than others, simply because they are reliant on sales tax revenue, of which gas stations are a primary contributor," Allison said.

The COVID-19 pandemic has ravaged U.S. fuel demand in April.  According to an exclusive OPIS survey of about 15,000 stations throughout the country, March gasoline demand was down 19.1% versus the same month last year, and through the first half of April gasoline demand is down 48.8% versus the same time frame last year.

During March, just three states saw fuel volumes drop by 100 million gal or more: California (332.1 million), Florida (108.8 million) and Texas (233.7 million). In April, OPIS data suggest that 23 states will see fuel volumes fall by more than 100 million gal, with eight seeing demand losses greater than 200 million gal versus levels of April 2019.

Once again, California and Texas are seeing the largest volume losses, of 657 million and 567 million gal, respectively. The gallons lost lead to tax collections being down either side of 50% in those two states, which are the largest in terms of population.

On a percentage basis, though, Michigan appears to be in more dire straits, with fuel sales tax revenue this month projected to be down 58.4%, or $63.1 million, than in April 2019. Michigan is also one of the states in which April volumes are expected to fall roughly 223 million gal year on year.

The tightening of state budgets is not being lost among leadership, with recent local reports indicating that Michigan is considering layoffs of non-essential workers. The Michigan State Budget Office estimates that economic impact from COVID-19 could leave a $1 billion-$3 billion revenue gap for the state during the fiscal year, which runs through the end of September.

The lost tax revenue from fuel sales is just one thing, but if people are not driving many are not likely going to shopping malls and movie theaters. As a result, states are losing out on millions of dollars in sales taxes.

States like Florida that rely on tourism dollars are also getting hit hard.

When attractions like Disney World will reopen is one of the key questions being asked. With many popular attractions temporarily closed, significant sources of revenue are being lost with few hotel rooms and flights being booked and not many rental cars being used.

Adding to the tourism-revenue concerns is increased unemployment, as U.S. claims have jumped by nearly 22 million over the past four weeks.

Florida gasoline sales for April are anticipated to slide from April 2019's 852 million gal-plus to less than 460 million gal.

Ned Bowman, executive director of the Florida Petroleum Marketers Association, sees the state trying to adjust, but is skeptical of a return to normal as far as gasoline demand is concerned.

Bowman notes that some rural areas are doing OK, but even with that he breaks down the math like this: Say Florida sees 250 million gal per week gal consumed. Even if it can get back to of half that, the sales would represent only about one-sixth the typical tax revenue the state would receive. Bowman estimates that would lead to at least a 10%-15% decrease in funds allocated to roads and inspections.

Bowman also worries about the loss of inside store sales and the chances of some independents being unable to make lease payments and permanently shutting their stores.

Convenience stores are in a unique predicament. As oil and refined product markets have collapsed, rack-to-retail margins moved to record heights; though that is still the case with strong margins, lost volumes take away some of the celebratory margins. There is also the other side of the c-store aspect: inside sales. Location can be a key determinant for inside store sales along with offerings, but while fresh data may be a few weeks away, anecdotally at worst inside store sales are off by 25%, sources estimate.

However, there could be some instances in which inside store sales are markedly better, with some stores operating in a region with few retail options. For perspective, 2019 inside store sales were up 4.4% ($251.9 billion), according to recently released figures from the National Association of Convenience Stores.

Ultimately, it is still too early to tell what the damage to state budgets will look like once the economy is back up and running. Even with a piecemeal approach, as states reopen most analysts agree that a wholesale culture change will take place after a period of adjustment.

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--Reporting by Denton Cinquegrana, dcinquegrana@opisnet.com;

--Editing by Barbara Chuck, bchuck@opisnet.com

Copyright, Oil Price Information Service


COVID-19: Pertamina to Conduct Refinery Maintenance on Demand Crash

April 20, 2020

Indonesian state-run Pertamina plans to carry out turnarounds at some refineries and cut runs as domestic demand tumbled due to the coronavirus disease 2019 (COVID-19).

Pertamina said in a statement on Saturday that maintenance works at the 260,000 barrels a day (b/d) Balikpapan Refinery and 50,000 b/d Sungai Pakning refinery will be conducted earlier with termination at the crude distillation unit (CDU) alternately, though the company did not provide a specific timeframe.

The Plaju refinery with a 118,000 b/d capacity will cut operating ratios, while the 125,000 b/d Balongan refinery, 348,000 b/d Cilacap refinery and 10,000 b/d Kasim refinery will continue to operate normally, according to the statement.

"Pertamina will begin to reduce the refinery's operating capacity in stages according to demand conditions. Technically, the decline will also be adjusted to the refinery processing safety limit," said Pertamina Corporate Communication Vice President Fajriyah Usman.

Last week, Pertamina's chief executive officer Nicke Widyawati said it will reduce runs the Balikpapan refinery this month and may shut the site completely in May, as reported earlier.

Since March 2020, fuel demand in the country declined 35% compared to the average January-February 2020, Pertamina said. Gasoline demand fell 17%, gasoil slumped 8% and aviation fuel dropped by 45%, according to the company.

In major cities, fuel demand suffered decline of above 50% as the government took measures to curb the COVID-19 with consumption in Jakarta and Bandung down almost 60%.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

 

Reporting by Jongwoo Cheon, Jongwoo.Cheon@ihsmarkit.com;

--Editing by Hanwei Wu, Hanwei.Wu@ihsmarkit.com

Copyright, Oil Price Information Service


Hin Leong founder describes dubious accounting in court filing

April 20, 2020

The renowned founder of Singapore oil trading firm Hin Leong Trading (HLT), Lim Oon Kuin, has stepped down as the company's director and managing director, according to a court filing that also suggested he hid $800 million in derivatives trading losses.

The affidavit, dated 17 April and seen by OPIS IHS Markit, was submitted by Lim Oon Kuin himself to support an application to the Singapore high court for a six-month debt moratorium for beleaguered HLT. The resignation was to be effective immediately following the filing of the application. Lim would have "no executive or management function" in the company.

HLT's total liabilities are about $4.05 billion while its assets are valued at $714 million as of April 9, according to the affidavit. HLT, one of Asia's biggest independent oil traders, had sought advisories from lawyers, Rajah and Tann, and consultants PwC Singapore amid a credit freeze by its lenders, OPIS IHS Markit reported last week.

In describing its precarious state of finance in the court filing, Lim said HLT lost about US$800 million in the futures over the years but did not record these losses in its financial statements under his instructions. Margin calls resulting from these positions were recorded as "accounts receivables" and remained as such even after the losses were realized.  Lim said he had told the finance department that he "would be responsible if anything went wrong".

HLT had also sold "a substantial part of its inventory and used the proceeds as its general funds" even though the cargoes were bought with inventory financing provided by banks, Lim said.

In inventory financing, the "inventory" in question is typically pledged as collateral to the lender. Sales proceeds from the inventory are used to pay back the loan. To use the proceeds as general funds could leave the lender without collateral to claim in the event of a default.

HLT had also borrowed against bills of lading on transactions that were "executed on paper only". Lim said he gave "general instructions for such transactions to be done but do not recall the precise transactions or the details of such transactions".

HLT is the first known Asian trading company to battle financial troubles amid a precipitous fall in oil prices. Whiting Petroleum in the US had filed for bankruptcy protection earlier this month.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Thomas Cho, Thomas.Cho@ihsmarkit.com;

---Editing by Hanwei Wu, Hanwei.Wu@ihsmarkit.com

Copyright, Oil Price Information Service


India Looks to U.S. for Extra LPG Cargoes as Local Demand Climbs

April 17, 2020

India is turning to the U.S. for additional liquefied petroleum gas (LPG) supplies in the face of reduced output from the Middle East, which has flung open the arbitrage for incremental cargoes to be shipped from the U.S. Gulf Coast to help meet surging domestic demand, market sources said.

A countrywide lockdown that has now been extended to May 3 to curb the spread of the coronavirus disease 2019 (COVID-19) has sent demand for LPG bottles used as household cooking fuel soaring amid a government pledge to hand out free canisters to the poor.

At least two to three cargoes, totaling as much as 135,000 mt, were booked or are on their way to India from the U.S. for May delivery, said the sources, adding that U.S. producers have increased their butane ratio to meet this incremental demand.

India imported 575,130 mt of LPG from the U.S. in 2019, a mere 4% of its total imports, however, it was an increase rose from zero in the past few years, according to IHS Markit's Global Trade Atlas (GTA) data.

Three evenly-split cargoes were loaded onto very large gas carriers (VLGCs) in January from the Enterprise Terminal and one similar parcel was loaded in February, based on IHS Markit's Waterborne LPG report. Each cargo is around 45,000 mt.

Indian importers usually prefer cargoes from the Middle East due to its proximity. It takes more than 30 days for material from the U.S. Gulf to land in the Indian west coast via the Suez Canal versus less than five days from the Arab Gulf.

U.S. suppliers have also had to tweak their LPG increase the butane content as their export cargoes are usually propane rich, according to sources.

It set to ship a total at least 1 million of butane in April compared to 804,339 mt in March, equivalent to a 28% on-month increase, based on the Waterborne data.

A lower U.S. butane price is also acting as a booster for exports, said sources.

The Mont Belvieu TET and non-TET normal butane reached historic lows at 15.6875 cts/gal and 20.0625 cts/gal, respectively, on March 23, and 4-5 cts/gal lower than their respective propane prices, according to IHS Markit OPIS data.

The U.S. to Asia arbitrage has grown recently due to increased demand from Japan and South Korea, the usual key buyers of U.S. materials, and China, which lifted tariffs on U.S. LPG, said sources.

The spot chartering rates for Houston to Chiba route has gained by $21/mt since its a year-low of $75/mt in end-March, based on OPIS record.

Real-time LPG pricing helps you see how global markets fit together with the OPIS Global LPG Ticker.

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--Reporting by Lujia Wang, Lujia.Wang@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

Copyright, Oil Price Information Service


Bulging European Storage Tanks Push Jet Fuel Cargoes to the U.S. From Europe

April 16, 2020

Oil tankers hauling jet fuel are diverting to the U.S. away from Europe, as onshore storage tanks fill with product amid collapsing demand, according to shipbroker and IHS Markit Commodities at Sea data.

OPIS is tracking some 300,000 metric tons of jet fuel on five different vessels that were originally chartered from the Middle East Gulf and West Coast of India to sail to Europe. The BW Columbia and BW Rhine, carrying 60,000-tons and 65,000-tons of jet respectively, were both chartered to Europe, but are now signalling for New York discharge, according to satellite tracking data.

BP has chartered a 65,000-ton and a 60,000-ton jet cargo loading from the west coast of India on the UACC Eagle and the STI Expedite, respectively, according to shipbroker reports. The UACC Eagle is now signalling for Port Alucroix on the U.S. Virgin Islands and is due to arrive next Friday, while the STI Expedite is scheduled to arrive at Limetree Bay on May 9. ATC chartered the Red Eagle, which diverted to Port Everglades in early April, shipping 60,000 tons of jet fuel that loaded in the Middle East.

"Some of these vessels were booked...before the crisis escalated," one source said, adding that others may have opted to sail to the U.S. as there was ullage left.

"The market will try to make the most of this contango," said a second source.

"People will...be looking at options to take jet to the U.S. with extended delivery."

The northwest European CIF cargo jet fuel front-month swap was pegged at $31.80/ton below the second month at Wednesday's close. That compares to just an 85cts/ton contango between the front two months in January.

A range of factors is taken into account when calculating the costs of storage, at onshore farms and onboard vessels, but with the structure so wide, floating storage for the prompter months is a viable option, sources told OPIS.

Market sources have indicated that jet fuel storage in northwest Europe and the Mediterranean may be close to capacity. Jet fuel demand in Europe has plummeted amid the coronavirus disease 2019 (COVID-19) pandemic outbreak, with some airlines in Europe grounding their entire fleets.

In comparison, U.S. jet fuel inventories stood at 40.24 million barrels, some 2.13 million barrels lower than same time last year, according to the latest data from the U.S Energy Information Administration.

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--Reporting by Selene Law, selene.law@ihsmarkit.com;

--Editing by Rob Sheridan, rob.sheridan@ihsmarkit.com

Copyright, Oil Price Information Service


Analysis: Diesel Demand Destruction Takes Toll in Spreads and Rack Markets

April 16, 2020

Earlier this spring, prices for ULSD futures rallied to fetch numbers more than 54cts gal over RBOB. The consensus view was that demand destruction was negligible for diesel but at a record-setting pace for motor fuel.

A funny thing has happened more recently, however. Demand destruction for diesel has accelerated while gasoline demand appears to be plateauing at around 48% of April 2019 numbers. And quite a few futures participants have embraced buying RBOB and selling ULSD, confident that the former would outperform the latter.

This week's Energy Information Administration (EIA) report showed just 2.75 million b/d of domestic distillate consumption, representing a drop of 31% and marking the lowest weekly figure in more than 22 years. Large retailers and commercial distributors have noticed an acceleration in diesel demand destruction but believe year-on-year drops of about 15%-20% are common. Losses are more substantial in places like West Texas and North Dakota as cuts in shale exploration and production steepen.

There's a sense that spread trading has accounted for much of the damage in diesel prices in April. Spread plays require much less margin than outright positions in futures, and those 50ct/gal premiums have narrowed to about 18ct/gal more recently. Heavy action in spreads often "creates its own eco-system" in the futures markets and can often dwarf typical buy or sell-side hedging, sources observe.

But like NYMEX RBOB, the price of NYMEX ULSD has disconnected with some of the spot markets across the country. Discounts for the seven cash diesel markets that OPIS tracks for that transportation fuel range from 0.75cts/gal in Group 3 and minus 1.5cts/gal in New York to as much as 14-17cts/gal in California and 21.5cts/gal in Chicago. For the longest stretch, refiners on the coasts of the country were able to get $1/gal or more for ULSD, reflecting a per-barrel price of at least $42/bbl. As of midday Thursday, Great Lakes refiners could get no more than 72.4cts/gal, or a little over $30/bbl.

Put another way, diesel returns subsidized the losses for gasoline in the first quarter of 2020, and those subsidies have faded badly in April.

What worries refiners is history. May often brings the nadir for global demand for distillate. It's a shoulder month without much demand for heating fuel in the Northern or Southern Hemisphere. Most recent U.S. exports have been brisk at nearly 1.6 million b/d, but that may represent the best U.S. processors can do in the entire second quarter.

Disposing of diesel is already a significant problem in some parts of the country. OPIS' Bottom Line report, which tracks discounted barrels of diesel and gasoline, is now dotted with red ink. "Red" denotes markets where the OPIS Rack Low for ULSD is discounted, and recent days have seen plenty of double-digit markdowns.

Western markets see widespread difficulty in "clearing" diesel. Typical postings in California are well above $1/gal, but sharp buyers can find product (ex CCA costs) for about 80cts/gal in Sacramento, Richmond, and San Francisco.

The southeastern U.S. has seen prices tilt sharply lower. Georgia had gallons available in Bainbridge for as little as 85.85cts/gal with 88-89cts/gal common.

But the cheapest diesel is found in the regions that were most disadvantaged by hard-to-clear gluts of gasoline a month ago. Illinois rack prices of 65-66cts/gal were common throughout the state, and Indiana numbers were similar. Michigan had a poor winter for gasoline netbacks, and diesel is now commonly available for just 66-67cts/gal at multiple points. St. Louis saw a 16.98ct/gal price this morning that yielded an outright number of 66.25cts/gal.

And Ohio saw rack prices in Toledo and Cleveland drop below 69cts/gal, as compared to Pennsylvania prices that were mostly in the 90-98ct/gal range.

And Milwaukee continues to be a quizzical local market. Just a week ago, E10 values slipped to about 20cts/gal, representing a poor return for refiners with even the cheapest feedstock. This morning's racks saw Milwaukee diesel fetch just 67.10cts/gal.

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--Reporting by Tom Kloza, tkloza@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

Copyright, Oil Price Information Service


Mexico Sees Phase Three as Imminent; Mogas Sales Could Drop 45%: IHS Markit

April 15, 2020

MEXICO CITY - As the Mexican government expects an imminent rollout of phase three of its strict quarantine measures against the coronavirus disease 2019 (COVID-19), IHS Markit expects Mexican demand could drop as much as 45% year over year (YOY) in April and May.

On Tuesday evening, Mexico's Deputy Health Secretary Hugo Lopez-Gatell said the government projects that regional outbreaks could spread the virus at a national level, generating thousands of infections and putting the country's health system at risk of collapse.

"Phase three is inevitable. The epidemic isn't going to slow down. It is unstoppable," Lopez-Gatell said at a webcast press conference. Previously, the deputy secretary said it is likely that phase three measures will be rolled out by the end of the month.

Lopez-Gatell said as of Tuesday evening, Mexico reported 5,400 confirmed  COVID-19 cases and 406 deaths. Based on the number of confirmed cases under its Sentinel Monitoring System, the Mexican government infers there could be 44,000 COVID-19 cases across Mexico.

Phase three will be implemented at a national scale due to the high level of mobility among states. Certain regions, such as Mexico City, Quintana Roo and the Baja California Peninsula, already have critical levels of infections.

"We consider it could be confusing for the population if we had localized declarations," Lopez-Gatell said.

Paulina Gallardo, an IHS Markit downstream analyst for Latin America, told OPIS that the size of the drop in gasoline demand in Mexico and how fast its recovery to pre-COVID-19 levels will depend on how effective the country is at containing the pandemic.

"The determinant factor on any fuel demand projection is how restrictive Mexico's quarantine measures are under phase three," Gallardo said. There is a risk that Mexico could undergo a slower U-shaped recovery, rather than a V-shaped one under stricter social distancing measures seen in countries like Spain, Italy, and China.

It is yet to be seen how restrictive Mexico's federal government quarantine measures will be under phase three and the plan's impact on mobility. However, President Andres Manuel Lopez Obrador said no state of emergency would be declared, nor will he use security forces to ensure people stay in quarantine.

IHS Markit, under its base scenario with a slim U-shaped recovery, expects gasoline demand to begin recovering in September to normal levels with a YOY drop in demand in April and May of around 35%. Under this projection, Mexico's gasoline demand in 2021 could be between 760,000 and 780,000 b/d, slightly under 2019 reported levels.

However, under the worst-case scenario with an extended U-shaped recovery, quarantine measures won't be strictly followed. Therefore, demand could drop YOY by 35%-45% from April to July with fuel demand recovering to normal levels later in 2021 due to a major GDP contraction, Gallardo said.

"If the economic conditions worsen, fuel demand in 2021 could be 40,000 to 50,000 b/d lower than the average for 2019," she said.

Projecting how much diesel demand will shrink during the peak of the COVID-19 pandemic in Mexico is more complicated, Gallardo said. The worst hit on diesel demand could be seen in May, after stock inventories deplete in April amid a shutdown of manufacturing plants and other factories.

The drop in diesel demand YOY for 2020 could be 10% compared with the previous year, Gallardo said. However, other sectors, such as the agricultural industry, could provide support for diesel demand.

"How rapidly diesel demand recovers this year will depend on how fast manufacturing activity picks up after the COVID-19 pandemic is constrained," she added.

Mexico Mobility Trend Remain High

In Spain-one of the nations with the strictest quarantine currently in place - the volume of gasoline distributed during the first week of April fell 82%, 68% for diesel and 92% for jet fuel, according to a report from Spain's largest midstream operator, Compañia Logistica de Hidrocarburos (CLH).

Google mobility data shows that the number of people going to retail and recreation sites fell 94% on the week ended April 5 versus January, 89% for transit stations, 77% for grocery and pharmacies, and 68% for workplaces.

In comparison, the number of people going to retail and recreation sites in Mexico fell 62%, 50% for transit stations, 27% for workplaces, and 19% for groceries and pharmacies, Google mobility data shows. This despite the government suspending all non-essential economic activity on March 30 and urging all people to stay home.

Data collected by OPIS from fuel retail networks shows gasoline sales in the U.S. dropped 48% during the first week of April. Google mobility data shows that week the number of people going to retail and recreation sites fell 49% across the U.S., 54% for transit stations, 40% for workplaces and 20% for groceries and pharmacies.

Lopez-Gatell said Tuesday that mobility in Mexico City had dropped 70% against normal levels as a result of social distancing measures. However, the deputy secretary said there is no reliable data for from local and state governments for other parts of the country.

During the last week of March, gasoline demand dropped 15.7% YOY, down to 701,000 b/d compared with 811,000 b/d a year ago. In the case of diesel, during the last week of March, diesel demand fell 7.8% YOY to 380,000 b/d.

Mexico's largest fuel retail association ONEXPO told OPIS on Monday fuel demand fell 40% YOY during the first week of April, according to reports from its members.

Market sources told OPIS that fuel sales have fallen up to 40%-60% in metropolitan cities and at retail stations in areas with high acquisitive power. Meanwhile, demand in many rural stations and smaller urban areas remains close to normal.

The most affected states have been Baja California Sur with 20 COVID-19 cases per 100,000 people, Mexico City with 17 casesper 100,000, Quintana Roo with 14 cases per 100,000, Baja California with 11 cases per 100,000, Sinaloa with eight cases per 100,000, Tabasco with seven cases per 100,000, the deputy secretary said.

 However, experts have questioned the Lopez Obrador administration COVID-19 picture. The Investigative Science Coordinating Council at Mexico's largest university, UNAM, reported on Monday that it is likely the government could be underreporting COVID-19 cases and logging them as Acute Respiratory Infections (ARI).

The council said the number of ARI cases reported in Mexico has grown.

According to the council, the number of ARI cases have increased by over 150,000 over the average trendline for the last five years.

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--Reporting by Daniel Rodriguez, drodriguez@opisnet.com;

--Editing by Steve Cronin, scroning@opisnet.com

Copyright, Oil Price Information Service


Rare VLGC Charters as Floating Storage in India on Full LPG Tanks

April 15, 2020

Indian importers made a rare move to book very large gas carriers (VLGCs) as floating storage in an attempt to cope with massive spot purchases after a surge in domestic cooking gas demand in the wake of a government lockdown to control coronavirus disease 2019 (COVID-19), said market sources.

On the back of Prime Minister Narendra Modi's announcement of a 21-day countrywide lockdown on March 25 that has now been extended to May 3, the government also said that it would provide free liquefied petroleum gas (LPG) to the poor, which sent demand soaring and triggered a slew of buy tenders.

As these buy orders, which were first made 2-3 weeks ago, begin to arrive at the Indian ports and bottleneck emerged as suppliers struggled to break bulk and transport the LPG to bottling plants for final sale to households, they said.

Consequently, at least 2-3 VLGCs were chartered so far as floaters with onshore tanks filled to the brim, said trading sources, adding that lockdown measures, which make worker movements difficult have worsened the supply chain logistics that's already stretched by India's limited LPG storage capacity.

India has an estimated 1 million mt of LPG storage space, which is equivalent to around 22 VLGCs, based on IHS Markit data.

Three state-run refiners have purchased more than 500,000 mt of LPG through tenders issued for delivery from April to early June, said sources.

The country is still seeking more spot cargoes and building up inventories amid the extended lockdown, they said.

It costs around $47,000/day to use a VLGC as a floating storage, according to market sources.

The government said that it will provide free LPG cylinders for three months from April to June to around 80 million families under the PMUY scheme along with other measures in a $22.5 billion stimulus package.

Around 12.6 million LPG cylinders of 14.2 kg, equivalent to 178,920 mt, have already been booked under the Pradhan Mantri Ujjwala (PMUY) scheme this month, according to a local media report.

Indian importers had previously added a force majeure clause associated with COVID-19 to its spot tender that led to higher premiums to cover the risks for sellers, traders said.

Premiums of $30s/mt and $50s/mt were placed to the May CP for a 45,000 mt evenly-split cargo for May delivery to the western and eastern shores, respectively, according to the sources.

As a comparison, recent cargoes sold into further away south and east China for May delivery were heard at premiums of around $40s/mt to the May CP.

No major delays have emerged so far in terms of discharging cargoes in Indian ports, according to a shipping source.

Real-time LPG pricing helps you see how global markets fit together with the OPIS Global LPG Ticker.

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--Reporting by Lujia Wang, Lujia.Wang@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

Copyright, Oil Price Information Service


ExxonMobil has Zero Tolerance for Sub-Zero Petroleum Prices

April 14, 2020

Several U.S. companies, including ExxonMobil, attempted earlier this month to insert clauses in their contracts that would negate the possibility of sales prices below zero.

The effort came against the backdrop of some U.S. spot markets trading in the 20s for various blendstocks, with many formulae deals on the books at large discounts to NYMEX references. Last week, OPIS confirmed rack prices at less than 10cts/gal, and there were worries that spot transactions might descend to where a discount of 40cts/gal to futures might result in a negative price. The clauses for the deals were reportedly invoked for spot deals on the Colonial Pipeline tied to front-month NYMEX products contracts.

What's not known is whether any buyers agreed to the terms. At least one large commodity trading house saw its legal experts reject the terms, noting that "negative pricing" has occurred in recent years in natural gas and electricity.

When reached for comment, ExxonMobil declined, citing its policy of not commenting on commercial matters.

OPIS dealt with negative numbers for Edmonton propane in the middle of the last decade, in one of the most colossal collapses in any commodity in U.S. history.

Propane prices soared to over $4/gal in the Polar Vortex winter of 2013-2014, but by late spring 2015, holders of Edmonton propane had to pay customers to take barrels away.

Sources say that CME has advised clients of its ability to handle negative prices, should another wave of price weakness sweep through petroleum or energy futures.

Negative numbers for crude oil were chronicled in 2016, but crude oil postings work nothing like spot transactions. Instead, buyers declare what they are willing to pay for various grades of crude oil. That year saw Flint Hills Refining post a negative number for some low-grade Rocky Mountain crude oil blends. It is not known whether crude suppliers ever acquiesced and paid the company to take away the crude.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

 

--Reporting by Tom Kloza, tkloza@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

Copyright, Oil Price Information Service


Unknown Demand Destruction May Undermine Record OPEC+ Output Cut Accord

April 13, 2020

An accord by a group of producers, known as OPEC+, to reduce global oil output by record amounts for May and June will help stabilize the market but is not far reaching enough to rally prices due to the vast and still unknown scale of demand destruction wreaked by the coronavirus disease 2019 (COVID-19).

The well-telegraphed meeting, which led to sharp price gains last week when word first emerged of a possible reconvening of talks among producers including the two biggest protagonists Saudi Arabia and Russia with the United States providing both the carrot and stick towards a deal, has already been discounted by the market, industry sources said.

"Without this deal, the global industry would have run out of storage for the flood of excess oil in a few weeks and prices would have crashed, which would have also really hit financial markets," said IHS Markit vice chairman Daniel Yergin. "This restrains the build-up of inventories, which will reduce the pressure on prices when normality returns -- whenever that is."

This historical cut, paired with the expected declines and shut-ins likely to occur in the next few months in the United States, Canada and some other countries, promise to remove up to 14 million b/d in May and June, according to Roger Diwan, vice president, financial services at IHS Markit.

"This is a critically-needed relief in the face of declines in crude demand estimated at around 20 million Mb/d," said Diwan. "Stepping away from a destructive price war, the return to market management by Saudi Arabia and Russia and backed by the United States and a very involved President Trump, marks a physical and psychological inflection point for the oil market."

ICE Brent futures initially fell following news of the agreement but rebounded later in the day. At 9 a.m. ET, June Brent futures remained down by 25-30cts and trading at $31.21/bbl. May WTI futures were holding small gains of about a dime at $22.84/bbl. The front-month Brent futures jumped almost 53% from a low of $22.71/bbl on March 31, prior to news of a possible deal, to close at a high of $34.65 on April 3, the data show.

"The market is quite disappointed. Brent came off a bit this morning, the 9.7 million b/d output cut is not enough to offset demand loss. It will only try to delay tank top situation," said one Singapore-based trading source, adding that Saudi Arabia pumped a lot this month and these cargoes will need to go into storage first before a clearer picture of market fundamentals emerges.

"This is a welcome step, but in 2Q the cut is a bit low, where we are forecasting demand reduction of 20 million b/d," said Premasish Das, IHS Markit downstream research and analysis director in Singapore. "A lot depends on the big unknown, 'how the demand recovery takes place' and also how the stakeholders of this production cut comply."

OPEC+ agreed on Sunday to reduce output by 9.7 million b/d for May and OPEC+ June, after four days of talks in the face of pressure from U.S. President Donald Trump. The cut is more than four times larger than the previous record set in 2008.

According to the agreement, producers will slowly ease up the reduction after June but will maintain lower productions until April 2022.

Non-members Brazil, Canada, Norway and the U.S. would contribute 3.7 million b/d, according to media reports, while Gulf OPEC members will make bigger cuts given their bumper output in April.

Another facet of the agreement was that members of the International Energy Agency (IEA) and other major consumers would add 3 million b/d of oil to their strategic stockpile in the coming months. This, as seen in previous IEA commitments, is a bureaucratic process that will take time to materialize.

Trading sources said how the physical oil market reacts to the output cuts will be the ultimate judge of the success of the OPEC+ initiative.

"If the cuts are large enough to reduce the contango to the extent that storage is no longer viable then the freight market will come down for sure," said one ship broker, which he added also translates to reduced pressure on the oil market.

A narrower contango will bring more balance to the market, and for that to happen demand must also pick up, they said.

In the longer term, one fear among participants is that when recovery is entrenched, there will be a temptation for producers to be less compliant with their output cut commitments and prematurely damage the accord.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

 

--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com;

--Editing by Sok Peng Chua, SokPeng.Chua@ihsmarkit.com

Copyright, Oil Price Information Service


Lufthansa Parks 42 Planes Amid Grim Demand Forecast

April 8, 2020

German carrier Lufthansa is downsizing its airplane fleet amid expectations that airline traffic recovery could take years, it said in a press release on Tuesday.

Lufthansa's executive board believes that global travel restrictions could be lifted in months, but it could take years for worldwide demand for air travel to return to pre-crisis levels.

In response, Lufthansa and subsidiaries Lufthansa Cityline and Eurowings will decommission 37 Airbus airplanes and five Boeing airplanes, reducing capacity in its Munich and Frankfurt hubs.

The aviation sector is one of the hardest hit by the coronavirus 2019 disease (COVID-19) pandemic, which has seen countries across the globe impose domestic and international travel restrictions.

Data from travel analytics company ForwardKeys shows that global international airline seat capacity for the first week of April declined by more than 77% to 10 million seats from 44.2 million the same time a year ago.

"Governments have closed entire countries. In response to Covid-19, the airline industry has cut services to the bone. It is likely that when we get across to the other side of the pandemic, things won't return to the vibrant market conditions we had at the start of the year," Olivier Ponti, ForwardKeys vice president, insights, said in a statement last week.

However, Lufthansa recovery forecast is markedly more pessimistic compared with IHS Markit's outlook.

Eleanor Budds, associate director at the parent company of OPIS, believes that aviation demand will return to pre-crisis levels in spring-summer 2021.

"After international travel resumes, we expect a lingering downward effect from fear of traveling, lower business travel, potential border entry restrictions, and of course the economic fallout from job losses. Upside will have to come from airline and travel operators offering low prices and flexibility," Budds added.

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--Reporting by Selene Law, selene.law@ihsmarkit.com;

--Editing by Paddy Gourlay, patrick.gourlay@ihsmarkit.com

Copyright, Oil Price Information Service


EIA Numbers Detail COVID-19's Impact on Jet Fuel

April 8, 2020

The U.S. Energy Information Administration's first report of supply and demand figures across all products and regions documents how the coronavirus disease 2019 (COVID-19) has impacted jet fuel supply, production, and demand.

The numbers confirm what IHS Markit, OPIS' parent company, first forecast in March to its clients: that jet fuel demand in April would be 606.7 million b/d compared to 1.75 million b/d in April 2019. May volumes, IHS Markit calculates, will be 767.7 million b/d versus 1.781 million b/d last May, with June 753.4 million b/d compared to 1.799 million b/d June 2019.

Debnil Chowdhury, executive director at IHS Markit, revealed these numbers in an OPIS webinar conducted in March. Get the recording here

Some believe that the demand destruction for jet fuel may linger into the summer. Airline executives believe it will take years for the industry to recover from the devastating impact for U.S. and global aviation.

EIA reports jet fuel deliveries for the week dipping to 755,000 b/d, which is almost 1 million b/d less than what was reported three weeks ago. Each of the past three weeks have seen declines, but this week's report is the sharpest yet, with weekly deliveries plunging 580,000 b/d from those of the prior week.

IHS Markit also calculates that jet fuel refinery yields have dropped to just 6% nationally -- about as low as they can go, sources tell OPIS. The latest EIA production numbers point to producers lopping 257,000 b/d out of weekly jet output to 872,000 b/d.

Production was cut across all regions: Gulf Coast output, where almost half of the country's fuel is produced, fell to 449,000 b/d -- far off its 1 million b/d rates earlier in the year and 2019. West Coast output toppled to 224,000 b/d, more than half of what the region customarily produces. East Coast production is now 29,000 b/d compared to levels that just a few weeks back topped 100,000 b/d. Midwest output sank to 155,000 b/d, off its 300,000-b/d mark at the end of 2019.

Production and demand numbers are lows not seen in decades.

Inventories of jet fuel rose despite the run cuts as fuel deliveries are crawling. National stocks are 38.9 million bbl compared to 38.3 million a week ago. Most of that gain came in the West and can be attributed to imports that over the last two weeks have averaged 175,000 b/d.

Exports of jet fuel remain strong and are helping to siphon off some surplus barrels.

The run cuts and talk of a possible deal to end the price war between Saudi Arabia and Russia have pushed jet prices higher over the past week, but market values are down just over a penny today, with Gulf Coast barrels priced just over 71cts/gal and Los Angeles 61cts/gal.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Ben Brockwell, bbrockwell@opisnet.com;

--Editing by Barbara Chuck, bchuck@opisnet.com

Copyright, Oil Price Information Service


COVID 19: Asia Naphtha Brent Crack Stuck in Negative Amid Gasoline Collapse

April 8, 2020

The Asia naphtha crack, or refining margin, to Brent crude fell into negative territory this month on the back of weakness in the gasoline market just as a surge in arbitrage cargoes from Europe and the U.S. for May arrival exert more pressure.

The Japan open-specification naphtha (OSN) crack to Brent fell to minus $60.125/mt on April 7, the lowest on IHS Markit OPIS records going back to July 2014. The crack to Brent has been negative for five straight sessions since the start of the month, the longest stretch since June last year with six sessions.

In addition, the OSN first cycle/third cycle contango widened to $7.00/mt on April 7. It was the widest since a similar $7.00/mt contango in September 2016, suggesting weak supply/demand conditions for the second half May cycle.

OSN cracks to Brent this week were weighed by concerns over gasoline demand in Latin America amid the spread of the coronavirus disease 2019 (COVID-19), said a procurement official for a Japanese chemical producer.

Such concerns come in the face of deterioration in gasoline demand in Europe and the U.S. amid lockdowns and efforts to curb the spread of COVID-19. The U.S. west coast and Latin America are export markets for East Asian refiners.

Since gasoline demand has tumbled, naphtha is not going into the gasoline blending pool, said a Singapore-based market source, adding that naphtha barrels were being pushed to Asia for petrochemical use.

"For arbitrage cargoes, May-arrival is said to be 2.5 million mt," the source said, adding that typically 1.7-1.8 million mt per month is shipped.

In addition to loadings from Black Sea ports, Algeria and USGC, recent shipping fixtures show naphtha cargoes from unusual points such as Spanish ports, bound for Japan.

The Kamome Victoria is heading to Japan after loading 60,000 mt from Huelva on April 3, according to fixture lists. The vessel was chartered by Spanish refiner Cepsa at a cost of $2.9 million. IHS Markit's ship-tracking service, Market Intelligence Network (MINT), shows that the tanker left Huelva terminal on April 7 and is now headed toward Port Said in Egypt.

The Torm Signe is also headed to Japan after loading 60,000 mt from Cartagena in late March or early April, fixtures showed. The vessel was chartered by Repsol at a cost of $3 million. MINT shows that the tanker left the Spanish port on April 4 and arrived at the Spanish port of Algeciras on April 7, possibly to pick up top cargoes. There was no indication of its next destination.

Another recent fixture showed a Petrobras chartered vessel BW Yangtze possibly heading to Asia after loading 60,000 mt from Suape port in Brazil on April 2.

The fixture showed that the vessel might make a transatlantic voyage, or head to Singapore or Japan. MINT shows the tanker left Suape on April 3 and is now anchored off Salvador. There was no indication of its next destination.

Cargoes due to be moved from USGC to Asia include 38,000 mt on April 10 on the Carina, chartered by Valero at a cost of $1.25 million, according to fixtures.

The tanker is now moored at Houston port, according to MINT. There was no indication of its next destination.

The cost of 40 N+A naphtha in USGC was at around $163/mt as of April 7, while paraffinic naphtha was about $136/mt, while in Asia, open-specification naphtha for H2 May closed at $193/mt, according to IHS Markit OPIS data.

The higher price in Asia meant that surplus cargoes from almost everywhere are looking towards East Asia in the hope of securing a home, market sources said.

Gain greater transparency into Asia-Pacific markets for more strategic buy and sell decisions on refinery feedstocks, LPG and gasoline with the OPIS Asia Naphtha & LPG Report. Get your free trial here

--Reporting by Masayuki Kitano masayuki.kitano@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

Copyright, Oil Price Information Service


ExxonMobil Maxing Out Fawley Storage, Chartering Tankers

April 7, 2020

Oil tanks at the 270,000-b/d Fawley refinery are about to be filled, forcing operator ExxonMobil to use vessels for storage purposes, OPIS has been told.

Sources say that three tankers have been chartered by ExxonMobil to store oil products close to the U.K.'s largest refinery, which is located on the southern English coast.

Sources told OPIS two weeks ago that the U.K. government insisted to the super major that it must keep the refinery running "at all costs" during the COVID-19 pandemic, even as refining margins for products such as gasoline entered double-digit negative territory.

The British government is holding regular conference calls with the refinery's manager in order to receive updates about the plant's status, sources say.

OPIS understands that runs at the refinery have been cut, with one of three pipestill units and one of two powerformer units being taken offline.

Like other refineries, Fawley is attempting to maximise diesel production as it remains the most profitable part of the barrel, say sources.

OPIS assessed the northwest European diesel refining crack at $8.74/bbl on Friday. By contrast, the jet crack was assessed at minus $1.86/bbl and the Eurobob gasoline crack was pegged at minus $9.54/bbl.

Diesel represents 29% of the refinery's output, while gasoline, jet and petrochemical feedstocks make up 28%, 11% and 9% of output.

Fawley is a critical part of the U.K.'s energy infrastructure because of its links to the nation's largest cities and airports.

Eighty-five per cent of the refinery's output is pumped through underground pipelines as far away as London, Birmingham and Bristol. Pipelines connect the refinery to Heathrow and Gatwick airports.

OPIS has previously reported that two other British refineries with turnarounds scheduled to begin in April will also continue to operate and supply fuels during the pandemic.

Heavy maintenance work at the Petroineos-operated 210,000-b/d Grangemouth refinery has been postponed, while sources say that the April-June turnaround scheduled for the Phillips 66-operated 205,000-b/d Immingham refinery has been pushed back to September.

Spokespeople for ExxonMobil, Phillips 66 and Ineos did not respond to requests for comment.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Anthony Lane, alane@opisnet.com;

--editing by Paddy Gourlay, patrick.gourlay@ihsmakit.com

Copyright, Oil Price Information Service



Asia Petchem Makers to Cut in LPG Cracking in May; Naphtha Faces Weak Demand

April 7, 2020

Asian petrochemical manufacturers plan to crack less liquefied petroleum gas (LPG) in May for a second straight month, but this is unlikely to support naphtha consumption much with the coronavirus disease 2019 (COVID-19) denting downstream demand.

LPG usage for petrochemical production in May is set to fall 6.8% on-month to 449,000 mt, according to an IHS Markit OPIS completed on April 7. This month, gas cracking volume is to decline 7.7% to a revised 482,000 mt from 522,000 mt in March, according to the poll.

LPG prices rose on demand from India where a nationwide lockdown boosted demand for the cooking fuel. The CFR Japan propane price on April 5 rose to $287.500/mt, the highest since March 10, IHS Markit OPIS record showed.

As a result, LPG cracking became uneconomical with the propane/naphtha ratio assessed at 142.9%. The ratio compares the first physical trading cycle for naphtha, with the second cycle for the CFR Japan price of 23,000 mt propane.

Petrochemical producers typically find it more attractive to crack naphtha instead of LPG when the ratio rises above 90%. But that's not the case now as the COVID-19 hit the global economy and consumption, analysts and traders said.

"In theory, lower LPG cracking volume may support naphtha consumption, but overall petrochemical demand is too weak to see solid naphtha demand," said Matthew Chew, principal researcher at IHS Markit in Singapore.

Naphtha prices tumbled on poor gasoline and petrochemical demand with the CFR Japan naphtha falling on April 1 to $165.750/mt, the lowest on the IHS Markit OPIS data going back to July 2014.

That helped cut ethylene production costs and improve margins.

The cash cost of steam cracking in Northeast Asia using naphtha was estimated at $91/mt as of March 26, generating a margin of $434/mt, according to the IHS Markit Asia Light Olefins Weekly report published on April 3.

The cost was $582/mt as of March 5 and the margin was $82/mt.

Asian petrochemical producers, however, were reluctant to process more naphtha given the demand crash with some already cutting cracker runs.

"Cracking margins are good in numbers, but we cannot raise runs due to the slowing economy," said a feedstock procurement manager at a petrochemical producer in Northeast Asia, which has been operating its cracker at 90% since January.

"We may cut runs further once downstream demand deteriorates more," said the manager, adding the company did not slash the ratio below 90% even in during the 2008-09 financial crisis.

Ethylene demand in Asia stayed weak on sluggish derivatives consumption, limited exports to India and pessimistic economic outlook, while supply increased on both regional crackers and deep-sea cargoes from Europe, IHS Markit said in the report.

Propylene demand suffered similar issues and supply rose on higher output from fluid catalytic cracking (FCC) units amid rising refinery run rates in Shandong and increased supply from on-purpose production units, according to the report.

The Asian Manufacturing PMI, compiled by IHS Markit, rebounded to 48.3 in March from February's 44.4, the lowest since March 2009. But the index stood still below the 50 threshold, indicating the economy was not out of woods yet.

IHS Markit has revised the forecast for China's GDP growth rate several times since the COVID-19 outbreak, from 5.8% at the start of the year to 4.3% and then to 2.0% as of March 26, according to an April 3 Asia Light Olefins report.

Global GDP is also expected to decelerate at 2.8%.

Methodology: IHS Markit OPIS collects Asian petrochemical companies' plans for the current month and the next month, as well as actual cracking volume in the previous month. IHS Markit OPIS checks if any manufacturers revise their plans for the current month and if any manufacturers crack more or less than initial plans in the previous month. IHS Markit OPIS contacts feedstock procurement officers of each companies for the survey by phone, email or messengers in the last week of previous month or the first week of the current month. IHS Markit OPIS surveys 16-20 companies a month.

Gain greater transparency into Asia-Pacific markets for more strategic buy and sell decisions on refinery feedstocks, LPG and gasoline with the OPIS Asia Naphtha & LPG Report. Get your free trial here

--Reporting by Jongwoo Cheon Jongwoo.Cheon@ihsmarkit.com,Masayuki Kitano Masayuki.Kitano@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

Copyright, Oil Price Information Service


Analysis: Gasoline Demand Destruction May Be Plateauing

April 6, 2020

"Flattening the curve" is now the top-of-mind goal for residents of the U.S. and more than 175 other countries. The phrase reflects hopes that the case confirmations and death totals related to coronavirus disease 2019 (COVID-19) stop what has been a relentless spring rise on the charts. Some signs seem to suggest a slowdown in the ascent, although government authorities warn that it is premature to suggest a flat line or imminent descent.

But there are some signs that the graphs showing U.S. gasoline demand in a steep rocky descent may soon hint of a flattening in unprecedented demand destruction. Surveys of large chain retailers across the Lower 48 states imply that this weekend's motor fuel sales were no worse than the previous weekend.

That's a small victory, but for the moment, the supply chain will accept it unconditionally.

Initial data for the weekend suggests that gasoline demand for the period ending April 4 or April 5 was generally consistent with what was witnessed in the last week of March. Multistate marketers tell OPIS that gasoline sales across the continental U.S. was off by 45%-49% from the same period last year.

Teams responsible for projecting April volumes are content with predictions of sales sliced in half.

Individual state data find some drastic "lumpiness."

The state with the most compelling demand destruction may be Michigan. Multiple surveys of traditional stations there have yielded year-on-year sales drops of nearly 60%. Weather may be a wildcard in the stark comparisons, since adjoining states like Indiana and Ohio find demand destruction closer to 40%. All of these states have retail gas that is priced at least $1/gal cheaper than last year, but ironically, Michigan's $1.23/gal discount the same time last year reflects the largest gap in all 50 states. Notwithstanding the largest price break to 2020, Michigan residents appear to be driving much less.

Other clear sore spots are California (down about 47%), Colorado (down about 50%-52%), Illinois (down about 46%), Maryland (off about 57%), Nevada (down about 54%) and Vermont (softer by 50%).

As of this morning, there were still nine U.S. states that did not mandate stay-at-home restrictions. OPIS is still collecting date on chains in some of the states, but fewer restrictions don't necessarily translate into more demand. Data for Oklahoma, for example, implies demand destruction in the high 40% area, pretty consistent with the 41 states that have encumbered travel.

Iowa, on the other hand, generally stands out with some of the most nominal drops in gasoline consumption, with drops in the 27%-28% neighborhood.

Brian Norris, executive director of retail data at OPIS, noted that "OPIS Demand data for the week ending March 28 saw U.S. same-store gasoline sales off by about 47%, so if preliminary data holds true for the week ending April 4 and the numbers look similar, it could potentially signal at least a temporary bottom for national motor fuel demand."

Norris added fuel retailers are anxiously looking for a sign that demand destruction is plateauing, so the full dataset in next Monday's OPIS Demand report will be "critical."

OPIS DemandPro, a web-based tool, looks at actual retail throughputs for the country and for each region and several states. The last full report, measuring demand through March 28, indicated demand at the 4.861 million-b/d level.

EIA Data Can't Help Refiners Gauge Real Demand

The Energy Information Administration has never been a reliable source for measuring domestic gasoline consumption. That's no fault of the EIA, but the surveys managed by its staff simply measure movement of gasoline from primary (reportable) to non-reportable storage. That storage might be the several hundred thousand retail tanks across the country, as well as small bulk plants operated by jobbers.

But that demand construct may be severely altered by the unprecedented premium the market affords large companies with storage tanks and cash or credit. The difference between the May futures price and the August quote at presstime was more than 15cts/gal. There was every incentive for companies to buy near term gasoline and store it for sale in August. No one can quite recall when this "carry trade" or contango play for gasoline has ever been more prosperous.

But buying gasoline for a storage "carry play" is not the same as sales earmarked for immediate sales to consumers.

EIA measured gasoline demand last week (with its traditional methodology) at 6.6 million b/d, a drop of 2.471 million b/d from the same week in 2019. The numbers are likely to show another historically poignant slide this week, perhaps moving below 6 million b/d.

However, the real number for gasoline moving from stations to vehicle tanks is probably much lower than what EIA will release. April gasoline demand averaged 9.356 million b/d last year, and that followed a 9.2 million-b/d fourth month in 2018 and 9.3 million b/d in 2017.

A slide of 47% from last year pushes the implied retail demand number below 5 million b/d, to 4.958 million b/d, or in a statistical dead heat with previous OPIS DemandPro numbers.

Some refiners are planning for sub-5-million-b/d domestic demand through April 30 and perhaps into early May. The forecasts are highly dependent on the flattening of coronavirus curves, not just in the U.S., but in export markets such as Central and South America that can provide an offshore home for about 700,000 b/d of gasoline.

If you are wondering when the U.S. last saw a lower monthly number for gasoline, you need look all the way back to March 1968.

That year is often cited as one of the most tumultuous years in American history. March that year saw the announcement that Alaskan oil was in Prudhoe Bay, discovered by Atlantic Richfield and Humble Oil (now ExxonMobil). At the tail end of March, President Lyndon Johnson announced that he would not run for reelection and November brought the presidency of Richard M. Nixon. As striking as 1968 may have been, however, history may show that it pales compared with the events of 2020.

OPIS DemandPro provides actual retail sales data collected directly from station operators. Gain the advantage in your market by knowing local gasoline sales volumes at all types of sites, including chains, new era marketers and branded retailers. Request a demo

 

--Reporting by Tom Kloza, tkloza@opisnet.com;

--Editing by Barbara Chuck, bchuck@opisnet.com

Copyright, Oil Price Information Service


The $1.5bn ExxonMobil U.K Refinery Upgrade To Be Reviewed: Sources

April 3, 2020

ExxonMobil's Fawley refinery FAST project, the largest upgrade to a British refinery in decades, will be subject to a company review scheduled for the end of the third quarter, sources have told OPIS.

The company told investors last month that it is pausing to review its rate of expenditure at the $1.5bn Fawley Strategy (FAST) project, which will boost diesel output at the 270,000-b/d refinery by 38,000-b/d, or 45%.

"They are going to review it in about six months' time," a source said with respect to ExxonMobil. "(Constructing) the new plants won't go ahead until (at least) 2021," said the source, who added that the FAST project could not realistically be finished by the end of 2021, the original target date for completion.

OPIS sources say that work has been curtailed at the main site where construction was scheduled to begin in the first half of this year, but upgrades at existing units are going ahead.

"They paused the main bit -- the building of the (hydrotreater and hydrogen plant) -- but they are going to continue with what they have started, which is the extension to the resid plant and (installing) HD7, which takes wax out.

Those two bits of the project are going to go ahead," said the source.

The resid hydrotreater converts heavy oil products such as fuel oil into lighter, more profitable products.

Sources told OPIS that some workers who had previously been offered work potentially running until October were no longer required at the site.

"The groundworks that have started for block 36B - which is where a new plant is going to be built - the contractors who were doing that were told a few weeks ago to cap the foundations off and demobilise and get off the site," said a source.

Asked whether a lot of contracts had been cancelled, a source replied: "Paused is the word, not cancelled. The job will go ahead one day. Nobody knows for sure when yet."

Asked to confirm that a review of FAST is scheduled six months from now, a spokesman for ExxonMobil said: "To optimise the investment and ensure that it delivers the best possible value, we are reviewing the rate of expenditure on the FAST project through 2020. We remain committed to enhancing the long-term competitiveness of the Fawley refinery."

Major parts of the project have already been constructed, OPIS has previously reported.

OPIS revealed in September that a process column was already under construction in India after being commissioned by Fluor, FAST's EPC contractor, even though planning permission for FAST had not yet been obtained from British local government authorities. That permission was subsequently granted by New Forest District Council.

Shortly before the Christmas break, sources told OPIS that the process column was scheduled to arrive at a nearby port around Boxing Day.

OPIS first revealed that ExxonMobil planned to extend the Fawley plant, Britain's largest refinery, in October 2017. Other media outlets reported the plan 11 months later, when the refinery's manager was interviewed in the Financial Times.

The 270,000-b/d refinery has cut runs in recent weeks by at least 70,000 b/d, sources say, coinciding with a crash in refining margins courtesy of the COVID-19 coronavirus outbreak.

FAST is not the only major project planned by a U.K. refiner to have the timing of its construction work thrown into doubt.

OPIS has learned that construction of a new 350-million pound combined heat and power plant at the Grangemouth refinery complex in Scotland has also been postponed amid uncertainty about the medium-term effect of the global pandemic.

The work was due to begin in the fourth quarter of this year, OPIS sources say.

No new start-date has been proposed by Ineos, say sources.

Spokespeople for Ineos have not replied to inquiries to confirm the story.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Anthony Lane, alane@opisnet.com;

--Editing by Paddy Gourlay, pgourlay@opisnet.com and Rachel Stroud-Goodrich, rstroud-goodrich@opisnet.com

Copyright, Oil Price Information Service


South Korea March Crude Oil Imports Drop to Five-Month Low

April 2, 2020

South Korea's crude imports in March fell to a five-month low, preliminary government data showed, as refiners reduced runs in the face of eroding local demand due to the coronavirus disease 2019 (COVID-19).

Crude purchases in March fell 5.2% on-year to 82.5 million bbls, according to the Ministry of Trade, Industry and Energy data. That would be the smallest since October 2019 when the country bought 82.3 million bbls, data from the Korea National Oil Corp (KNOC) showed.

Crude imports in the coming months are likely to fall further as refinery maintenance works and sluggish demand lead to bigger throughout reductions, an industry analyst based in Seoul said.

"It is inevitable to see declining imports, given the COVID-19 impact on demand and scheduled turnarounds," said the analyst.

In mid-March, GS Caltex shut its No. 2 155,000 barrels a day (b/d) crude distillation unit (CDU) and other facilities such as a 90,000 b/d naphtha splitter and an 81,000 b/d catalytic reformer for maintenance, which was set to last until the end of April, according to industry sources.

Hyundai Oilbank (HOB) plans to conduct turnarounds at the No. 2 360,000 b/d CDU a 53,000 b/d fluid catalytic cracker (FCC) at the Daesan refinery from April 15 to May 7, as reported earlier.

SK Energy is also scheduled to shut the No. 5 260,000 b/d CDU at its Ulsan complex in late May to late June.

Refiners have already lowered runs as domestic consumption of refined products, especially transportation fuels fell sharply. For example, SK Energy slashed runs at its 840,000 barrels a day (b/d) Ulsan complex by up to 15% in March, as reported earlier.

They also focused more on overseas sales.

Oil product exports in the first 25 days of March rose 33.8% in terms of volume and petrochemical shipments grew 17.5%, although overseas sales for the whole month in terms of value fell 5.9% and 9%, respectively, in line with the price crash seen across the energy complex, data from the ministry showed.

Refiners had to sell products at bargain prices to overseas markets as they could not cut runs too much despite poor local demand, the analyst said.

"Exports may not be able to sustain such rises as overseas demand is also weakening and runs will fall on turnarounds," he added.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Jongwoo Cheon, Jongwoo.Cheon@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

Copyright, Oil Price Information Service


Whiting Petroleum Announces Bankruptcy Amid Virus, Price War

April 1, 2020

Whiting Petroleum Corp. on Wednesday announced it was seeking Chapter 11 bankruptcy protection, making it the first major U.S. shale producer to become a casualty in the ongoing price war between Russia and Saudi Arabia that has seen a historic drop in energy prices.

In its announcement, the company said it has more than $585 million of cash on its balance sheet and plans to "continue to operate its business in the normal course without material disruption to its vendors, partners or employees."

Whiting also said it expects to have the liquidity it needs to meet its obligations during the restructuring without the need for additional financing.

The company said the decision to seek bankruptcy protection was due to market conditions that have seen energy prices plummet in recent weeks due to the price war and efforts to contain the coronavirus disease 2019 (COVID-19). On Tuesday, the NYMEX futures complex marked the end of its worst quarterly performance in history. The first quarter of the year saw the contract for U.S. benchmark West Texas Intermediate crude oil lose two-thirds of its value. RBOB futures also saw their value decrease by two-thirds during the quarter while ULSD prices gave back about half their value.

"Given the severe downturn in oil and gas prices driven by uncertainty around the duration of the Saudi/Russia oil price war and the COVID-19 pandemic, the company's board of directors came to the conclusion that the principal terms of the financial restructuring negotiated with our creditors provides the best path forward for the company," said CEO and President Bradley J. Holly.

In its announcement, the company said it has reached an agreement with noteholders on a "comprehensive restructuring" that would reduce company debt and "establish a more sustainable capital structure."

Among the things called for in the plan is for Whiting's existing shareholders to receive a 3% equity stake in the reorganized company. It also calls for "de-leveraging of the company's capital structure by over $2.2 billion through the exchange of all of the notes for 97% of the new equity of the reorganized company," and payment to all other secured creditors and employees.

"Through the terms of the proposed restructuring, we believe a right-sized balance sheet will enable us to capitalize on our enhanced cost structure, high-quality asset base and successfully compete in the current environment," Holly said.

Stock in the company, which had reached a 52-week high of $30.94 per share about a year ago, ended the session Tuesday at 67cts per share. The stock was off more than 43% Wednesday afternoon, trading at 38cts/share.Whiting's announcement marks the first high-profile company to fall victim to the ongoing dispute between Russia and Saudi Arabia, which began in March after Russia refused to go along with an OPEC plan to cut production to support energy prices during the virus-related fall in global energy demand.

It is expected other American shale producers, who face higher production costs than many other global producers, will also fall victim to the price war.

The WTI break-even price for U.S. shale plays is now about $42.41/bbl, according to IHS Markit data, about $10/bbl lower than where it was two-and-a-half years ago and about $37/bbl less than in January 2012. But break-even prices vary by play, from a low of $26.85/bbl for producers in Eagle Ford in Texas to $147.18 in the Powder River Basin in Wyoming, according to IHS Markit, which is the parent company of OPIS.

"With a sustained price downturn, bankruptcies among the privates and perhaps some publics, should accelerate, and consolidation could kick in," Citi Research warned at the start of the price war. Much of the impact won't be apparent until later in the year or if the price war continues into 2021, since many producers will benefit from hedging for 2020 done at higher prices, Citi had said.

The drop in energy prices prompted several shale producers to announce cuts in capital spending in an effort to firm up balance sheets for the tough times ahead. Whiting on March 16 had announced $185 million in cuts to planned capital spending.

Whiting's operations are located primarily in the Rocky Mountain region. Its largest projects are in the Bakken and Three Forks plays in North Dakota and the Niobrara play in northeast Colorado.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Steve Cronin, scronin@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

Copyright, Oil Price Information Service


COVID-19: European Refiners Cut Runs as Product Demand Plummets

April 1, 2020

European refiners have been reducing their runs in the past few weeks on the back of falling demand amid the coronavirus disease 2019 (COVID-19) outbreak. The following list is a snapshot of the main announced and heard developments.

--The major turnaround at the Shell-operated 404,000-b/d Pernis refinery in Netherlands, Europe's largest plant, has been brought forward and will begin on April 13, OPIS reported on March 30. The turnaround will take longer than previously expected because of the pandemic necessitating social distancing measures, OPIS sources say.

--Major works due to take place in April at the 210,000-b/d Grangemouth refinery in Scotland and construction of a new 350 million-pound power plant have been postponed. At least one unit is heard offline.

--Phillips 66 has confirmed run cuts in its refining system as part of actions taken in response to the challenging business environment. OPIS has learned that the refiner has pushed back a turnaround scheduled for April-June to September because of the pandemic.

--The U.K.'s largest oil refinery, the 270,000-b/d Fawley plant, has cut runs but remains online after discussions between operator ExxonMobil and British government officials. ExxonMobil cut refinery runs at Fawley by around 70,000-b/d at the beginning of the week after taking the Pipestil 1 unit offline. Fawley is a critical part of the U.K.'s energy infrastructure because of its links to the nation's largest cities and airports. Eighty-five percent of the refinery's output is pumped through underground pipelines as far away as London, Birmingham and Bristol. Pipelines connect the refinery to Heathrow and Gatwick airports. Diesel represents 29% of the refinery's output, while gasoline, jet and petrochemical feedstocks make up 28%, 11% and 9% of output.

--A planned turnaround at Total's 100,000-b/d Feyzin refinery was stopped around March 20. Total said in an internal letter that it was "impossible" to say when the works would resume. The maintenance at the refinery started on Feb. 14 and was expected to last seven weeks, Total had previously confirmed. The French major previously allocated 80 million euros for the works.

--ExxonMobil said on March 20 that it was cutting runs at its two French refineries, the 133,000-b/d Fos-sur-Mer plant and the 239,000-b/d Port Jerome refinery.

--On Monday, March 23, local media reported that Total was delaying bringing the 120,000-b/d Grandpuits refinery back online following a planned month-long maintenance due to plummeting demand.

--The fluid catalytic cracker (FCC) at Repsol's 120,000-b/d Coruna refinery in Spain began maintenance in January for two and a half months and is still in maintenance, a Repsol spokesperson told OPIS on March 30, adding that the refinery is operating at a reduced capacity. Sources reported that other Repsol plants are affected. Repsol has five refineries in Spain -- the Coruna, Puertollano (157,000 b/d), Tarragona (160,000 b/d), Petronor (220,000 b/d) and Cartagena (220,000 b/d) refineries.

--BP's 105,000-b/d refinery in Castellon, Spain, was adjusting production to respond to a sharp fall in jet consumption, local media reported.

--Cepsa is also looking at run cuts, local media says. Cepsa has two refineries in Spain -- the Huelva (220,000 b/d) and Gibraltar (240,000 b/d) plants.

--Italy's 315,000-b/d Sarroch refinery, operated by Saras, was heard still carrying out a partial turnaround in March.

--Finland's Neste said on Monday, March 23 that it would delay the major scheduled turnaround at its 206,000-b/d Porvoo refinery and would do only the most business-critical maintenance works planned for April- June.

--Norway's largest refinery, the 230,000-b/d Mongstad refinery, has trimmed run rates, OPIS heard at the end of March.

--Ralf Schairer, head of the 320,000-b/d Miro refinery in Karlsruhe, Germany, told local media on Tuesday, March 24 that fuel sales from the facility in April are likely to be up to 50% lower than in previous years. Schairer also estimated that the facility needs to cut staffing levels in half to minimize the risk of infection.

*** Get instant updates on refinery unit outages as well as a complete list of planned and unplanned U.S. Refinery Maintenance with the OPIS Refinery Maintenance Report: Request more information

 

--Reporting by OPIS Staff, OPISReporter@ihsmarkit.com;

--Editing by Anthony Lane, alane@opisnet.com

Copyright, Oil Price Information Service


US Refineries Anticipate Unit Idling as Gasoline Demand Crumbles

March 31, 2020

U.S. refining is entering a new phase of the fallout from coronavirus disease 2019 (COVID-19) -- full idling of processing units and plantwide shutdowns will be next, industry sources say.

The last week has been rife with reports of operating rate reductions within company systems -- reportedly in a range of 10% to 30% -- and yield shifts to maximize production of diesel in the face of sliding consumption of gasoline.

Phillips 66, PBF Energy and Par Pacific have confirmed reductions, while similar actions have been reported for Valero, Marathon Petroleum, Monroe Energy and ExxonMobil.

But as the first quarter of 2020 comes to a close and much of the country braces for the intensification of the pandemic through at least April, those overall rate reductions are expected to widen and deepen for some types of units.

The focus of the temporary unit shutdowns so far appears to be fluid catalytic cracking units, or FCCs, which are the workhorse units behind the majority of refineries' production of gasoline products.

Having represented quite a bit of first-quarter planned maintenance, FCCs are in some cases not being restarted after turnaround. Word of other kinds of units temporarily extending downtime is also beginning to circulate, industry sources told OPIS.

OPIS estimates the amount of FCC capacity down as of today due to run cuts is a little less than 400,000 b/d, according to Refinery Maintenance Report data.

The total amount of FCC capacity offline (including maintenance) is just under 990,000 b/d, according to OPIS data.

Total U.S. crude capacity not in operation currently comes to about 1.87 million b/d, of which about 270,000 b/d is due to run cuts.

Just how much more FCC capacity and overall refinery processing will slow is difficult to predict, but recent forecasts and indicators suggest that a rough halving of U.S. gasoline consumption is not out of the question.

As reported last week, OPIS parent company IHS Markit has projected that gasoline demand could decline by as much 4.1 million b/d during what it calls the COVID-19 response period.

OPIS data showed the national average volume of fuel sold in the U.S. was off by 24.1% in the week ended March 21 compared to the same week in 2019. The decline measured against the previous week came to 21.9%, according to an exclusive OPIS survey of more than 15,000 retailers nationwide.

Regional sales data showed deeper declines for the West (including California and Washington) at almost 30% year on year, and for the Northeast at 26.4%, where a number of refinery run cuts have been reported. Gasoline sales declines in the country's interior were a little lighter: 24% year on year in the four-state Southwest region and 23.2% in the Midcontinent.

As for full-plant temporary shutdowns due to COVID-19, North America has its first in North Atlantic Refining Ltd.'s 130,000-b/d Come by Chance refinery in Newfoundland. The refinery, which supplies cargoes of gasoline and diesel to the U.S. East Coast and sells distillate to European buyers, will maintain a reduced staffing crew on site to maintain equipment.

As reported by OPIS on Monday, earlier in March Come by Chance adjusted yields so that it wasn't manufacturing significant amounts of jet fuel. The refinery doesn't have an FCC.

*** Get instant updates on refinery unit outages as well as a complete list of planned and unplanned U.S. Refinery Maintenance with the OPIS Refinery Maintenance Report: Request more information

--Reporting by Beth Heinsohn, bheinsohn@opisnet.com;

--Editing by Steve Cronin, scronin@opisnet.com

Copyright, Oil Price Information Service



Technology Aids Speedy, Informed Decisions to Optimize Supply Chain

March 31, 2020

New technologies, by way of instant access to high frequency data and big data, is allowing companies for the first time, in a crisis, to swiftly make better-informed decisions that prevent resource wastage and bottlenecks, while making it easier to spot and leverage arbitrage opportunities.

The demand devastation wreaked by the coronavirus disease 2019 (COVID-19) is there for all to see and technology has kept decision makers aware of trigger points in almost real-time, thereby allowing rapid decisions to manage their supply chain, industry sources said.

"Demand is assessed so quickly and decisions made so rapidly that it prevents unnecessary deployment and use of resources," said one source. "The resources can be redeployed with the same speed when demand starts rebounding in the aftermath of this crisis."

"I have seen both the 2008 crisis and this one....and can tell you there is a quantum difference in response times. The world economy is much more nimble and efficient 12 years down the line," he added.

For example, a day after Indian Prime Minister Nerendra Modi announced a lockdown of the nation of 1.3 billion people, the nation's biggest oil refiner, Indian Oil Corp. (IOC), said it was cutting operating rates by 25-30%.

IOC's decision is based on both real-time data they are getting from their customers and also from the scale of fuel demand destruction seen in other nations that have gone through similar lock downs such as China, the sources said.

Chinese refiners used high frequency data such as passenger transportation usage and internal retail numbers to assess the scale of demand destruction on a daily basis to tailor their output and procurement plans accordingly, they said.

"A lot of companies are demanding a lot more visibility of what's going on, in terms of inventory and then they figure out their production. Companies are less likely to be completely blind this time around," said a senior executive at a specialty oil production company.

"The problem is usually the lag, sales don't tell the planners who can't talk to manufacturing and this then affects procurement. Now top management are well aware, today we have more coordination meetings and decisions are made instantaneously," he added.

In China, for example, integrated oil refiners such as Sinopec and PetroChina used data from their own network of retail outlets to gauge consumption patterns on a real-time basis, much faster that high-frequency data obtained from government agencies, to decide on operations, said Feng Xiaonan, IHS Markit downstream analyst in Beijing.

"Sinopec had high-level meetings, directing and playing the role of a coordinator to smooth things out. For example, asking Unipec to adjust crude purchase to align with refining requirements, while still giving individual refineries discretion over their operation as they can respond to local circumstances much faster such as storage levels, travel restrictions," Feng said.

"Even then, nobody anticipated it would happen this fast, and when it first happened, comparisons were made to SARS, again nobody expected the virus to spread so wide and so fast," she added.

These new technologies including instant data sharing allow companies to react faster in making informed decisions, Feng said.

Within the oil refining sector, such quick decisions were seen throughout the supply chain. In the case of China, as the industry got to grips with the speed and scale of demand destruction, actions came thick and fast including deferral and cancellation of crude oil purchases, overseas sales of surplus oil products and tweaking refinery slates to minimize output of worst hit fuels.

Refiners in Europe, the U.S. and India are now doing what Unipec did over a month ago in seeking to manage their supply chain, with talks emerging of force majeures and drastic run cuts, while others are seeking to back out or sell surplus crude cargoes, market sources said.

This, they said, would fuel the contango market further and induce more participants to look into storing crude oil for future sales.

"The big traders are so quick to seize upon the opportunity of oil that is almost free, to make a killing later down the line when things come back to normal," said one ship broking source.

For example, Shell booked the very large crude carrier (VLCC) Maran Corona for a voyage from the U.S. Gulf Coast to East Asia with storage option, while Hess has the Desimi on charter for the same journey for $15.25 million that includes 60 days storage at $95,000/day, a fixture list released on Friday showed.

This compares with a charter by Glencore, about two weeks ago for an ultra large crude carrier (ULCC) for $37,000/day for at least six months, which worked out to a carrying cost of about $0.40-$0.50/bbl per month compared with current six-month contango at around $10/bbl.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com;

--Editing by Carrie Ho, Carrie.Ho@ihsmarkit.com

Copyright, Oil Price Information Service



US Benzene, Ethylene Reach New Lows; Propylene Rebounds

March 31, 2020

Spot US benzene prices for April delivery reached 87 cts/gal DDP HTC on Monday, the first dip below the $1/gal level so far this year and the lowest price seen since early 2009. Benzene has been beset by weak demand worldwide and coupled with the slump in crude markets, price support for the commodity has crumbled. Like crude, US benzene's forward curve is in contango, with May closing at 90 cts/gal and June at 94 cts/gal on Monday, according to IHS Markit’s North American Aromatics Report.

European benzene prices dipped below $200/mt (67 cts/gal) on Monday, which weighed on US prices in this region as it will keep an arbitrage open to move product to the US Gulf Coast. An estimated 30,000–35,000 mt of benzene is expected to move from Europe to the USGC in coming weeks, although ship space is becoming limited. Traders and producers are already leaning on floating tanker storage, and as storage gets tighter it could push prices down further. Asia benzene pricing is still above North America but pricing in this region is sensitive to prices falling in Europe. 

Spot ethylene prices have moved into single-digit territory, with April trading at 9.25 cts/lb (27.5 cts/gal equivalent) at Mont Belvieu, according to OPIS PetroChem Wire. These are historic lows for ethylene; previous lows in past years were 10 cts/lb. Steam cracker operating rates were still relatively high in the USGC, with only three of the region's 50 olefins units shut (for maintenance). Ethylene's forward curve is also in contango, however slight. May ethylene at the Mont Belvieu NOVA hub was 9.5 cts/lb and June was 9.75 cts/lb. 

Even at these prices, ethylene was still a marginally profitable commodity: April production costs using ethane were 6.6 cts/lb on Monday, while costs using propane were 6.8 cts/lb. Costs using butane were 8.7 cts/lb and costs using natural gasoline were 5.1 cts/lb, according to OPIS’ NGL Forwards Report.

In contrast, spot propylene prices rebounded somewhat, moving from a 2020 low of 19 cts/lb last week (82.6 cts/gal equivalent) to 20.5 cts/lb FOB Mont Belvieu on Monday afternoon. Little interest has been seen for prompt polymer grade propylene but deals for 2Q and beyond combined with spread trades have buoyed front-month pricing.

Downstream, US polymer demand has held up despite the weak upstream price environment. According to OPIS PetroChem Wire, spot linear low-density polyethylene was 40 cts/lb on a delivered basis East of the Rockies, spot homopolymer polypropylene at 44.5 cts/lb and spot general purpose polystyrene was 60 cts/lb.

OPIS PetroChem Wire's Daily Wire provides closing prices and a summary of the day's trading activity for US ethylene, proylene, polymers and upstream NGLs markets. Begun in 2007, its olefins and polyolefins prices serve as benchmarks for a number of physical and swap contracts that trade on the CME/NYMEX Clearport system.

Learn more & try it free

 

--Reporting by Julia Giordano, julia@petrochemwire.com, David Barry, david@petrochemwire.com and Kevin Wallman, kevin.wallman@ihsmarkit.com;

--Editing by Kathy Hall, kathy@petrochemwire.com and Joe Link, joe@petrochemwire.com

Copyright, Oil Price Information Service


Gross Retail Margins Ease Off Records as Demand Takes a Tumble

March 30, 2020

Rack-to-retail margins across the United States are beginning to soften after soaring to record highs in recent weeks amid the steep, sudden drop in prices for crude oil and refined products.On Monday, the gross national average rack-to-retail margin for regular unleaded was 81.4cts/gal, with the national state high at $1.31/gal in Utah while Ohio's 50.6cts/gal was the national state low, according to OPIS MarginPro data.

The gross national margin is 14.1cts/gal off the national record-high margin of 95.5cts/gal hit on March 23, according to OPIS data. But it is still more than 22cts/gal higher than what had been the gross national daily record before the start of the month, when markets were hit by the one-two punch of the outbreak of a price war between Russia and Saudi Arabia and a sharp drop off in global energy demand due to global efforts to fight the coronavirus disease 2019 (COVID-19).

Heading into the month, the previous record margin had been 59.3cts/gal set on Oct. 6, 2008, at the start of the global financial crisis that led to the great recession. It's an indication of just how strong gross margins have been during March that the national average for the month through March 28, 64.15cts/gal, is 4.85cts/gal higher than the old record, according to MarginPro data.

Average national margins started the month at 35.8cts/gal and sank as low as 27cts/gal before rocketing upward. The national gross margin first shattered the old record on March 11, when it jumped from 55.1cts/gal to 67.8cts/gal, a climb of 12.1cts/gal. It jumped again on March 16, popping up 14.5cts, and then added 9cts/gal on March 23 to set the new record. The national margin spent two days above the 90cts/gal mark before dropping 8.9cts/gal, to 83.8cts/gal on March 25, the OPIS data shows.

The rise and fall of the national gross margins were largely reflected by trend lines in all regions across the United States, the MarginPro data shows.

In the Western region, regional gross average margins started the month at 46.4cts/gal, went as high as $1.193cts/gal on March 23, and are now $1.123cts/gal, according to OPIS data.

Regional gross margins in the Northeast were at 42.3cts/gal on March 1, hit $1.124 on March 23 and are now 93.5cts/gal.

In the Southeast, the average gross regional margin was 28.8cts/gal at the start of the month, peaking at 83.6cts/gal on March 23 and falling to 69.7cts/gal today, OPIS data shows.

In the Great Lakes region, the average gross regional margin was 35.2cts/gal on March 1, peaked at 80.3cts/gal on March 23 and is now 64.2cts/gal.

The Midwest region saw the gross regional margin at 35.1cts/gal at the start of the month before climbing as high as 96.4cts/gal on March 23 and falling to 85.3cts/gal today.

In the Southwest, the average gross regional margin was 29cts/gal at the start of the month, rose to 85.3cts/gal on March 23 and then settled at 72.8cts/gal today, according to the MarginPro data.

The climb in margins, however, comes at a time when all regions in the nation are seeing sharp declines in demand.

Nationally, the national average demand at fueling stations fell by 21% during the week ending March 21, with demand being off 24.1% compared to the same week in 2019, according to OPIS DemandPro data. Nationally, stations sold an average 19,840 gallons during the week ending March 7, compared to 15,646 gallons during the week ending March 21.

In the Western region, stores saw volumes fall 30% behind the same week last year, with sales of 19,807 gallons a sharp 23.2% decline from the 25,797 gallons sold during the week ending Feb. 29, OPIS data shows.

In the Northeast, average demand fell by 26.4% during the week ending March 21, when compared to the same year in 2019. Stations in the region sold an average 15,836 gallons during the week, compared to 20,156 gallons during the last week of February, a loss of 27%.In the Southeast region, sales lagged 20.1% behind the same week in 2019. Stations sold an average 14,475 gallons during the week, compared to 17,768 during the week ending Feb. 29, a decline of nearly 22.75%, according to OPIS data.

In the Midcontinent area, which includes the Great Lakes and Midwest regions, sales were 23.2% behind a year earlier, while the 14,457 gallons sold is off the 18,444 sold at the end of last month, a 27.6% decrease.

In the Southwest, station sales during the week ending March 21 were off 24% from the amount sold the previous year. Stations sold an average 15,678 gallons during the week, compared to 20,326 gallons at the end of February, a whopping 29.6% retreat, OPIS data shows.

The shakeup in national and regional sales, however, hasn't led to much change in market share holdings by the top brands. Nationally, the top three brands in store market share rankings for the month ending Thursday were Shell, with a 7.58% market share, Circle K with 7.42% and Speedway with 6.08%, according to OPIS MarketsharePro data.

That's compared to Shell with 7.66%, Circle K with 7.23% and Speedway with 6.12% a month earlier and Shell, with 7.77%, Circle K with 6.65% and Speedway with 5.81% a year earlier, the OPIS data shows.

OPIS RetailSuite

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--Reporting by Steve Cronin, scronin@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

Copyright, Oil Price Information Service


 

CCAs Rally After Financial Players Liquidate, Capsize Prices

March 30, 2020

California Carbon Allowance (CCA) prices are clawing back after a shocking exodus of financial players recently capsized seven years of policy-regulated inflation and exasperated pandemic-induced chaos in the California-Quebec Cap-and-Trade Program.

CCA bids inched higher Monday in the secondary market, after prices regained about $4.50/mt last week from an unprecedented deterioration of more than $6.50/mt since early March -- when fears of the coronavirus disease 2019 (COVID-19) surfaced. As the virus spread, trade volatility and liquidity escalated, causing massive waves of market uncertainty.

The crash hit a crescendo on March 23, when prompt vintage current year CCAs traded at $11.05/mt -- a price unseen since the inception of the emissions trading scheme. Four weeks before, on March 2, OPIS assessed the value at $17.82/mt.

When the air began to clear last week, noticeably absent were the financial players that arrived in a similar fervor last year with bouts of capital to buy into the carbon reduction program.

During the last 12 months, the groups -- like hedge funds -- placed many sure bets in forward positions, with an understanding that officials designed the cap-and-trade program with a rising price structure.

'Stop the Bleeding'

"The 'new money' that came in last March was over leveraged and when the prices dipped, they got margin called and stopped out and took down the market with them. ... Then, Sunday night some brokers and consultants got together a larger purchase to stop the bleeding and put some support into the market," a CCA trader said last week.

On the night of March 20, millions of CCAs traded on the Intercontinental Exchange (ICE), where the majority of the secondary market transacts, the trader said.

An ICE spokesman did not respond to comment on the trade volume or the potential effect of updated margin rates for ICE Futures U.S. Emissions Contracts that went into effect on March 23 -- the day CCA prices started to rebound.

The week before -- when CCAs took the largest nosedive -- 100 million CCAs exchanged hands "which is close to what we think the speculative length was in the market," analyst firm Clearblue Markets Managing Director of Markets Nicolas Girod told OPIS. Volume during a typical trading week is between 5 million and 10 million allowances, he said.

"I think most of the longs that wanted to go out have now liquidated," Girod said. "Once all these [speculators] are out, prices could come back closer" to the 2020 California-Quebec joint Cap-and-Trade Program Auction Reserve Price (ARP) of $16.68/mt.

CCAs in the Basement

It was a rare contrast to cap-and-trade policy design, when CCA secondary market prices dropped below the ARP level on March 17.

The ARP sets the floor of four quarterly CCA auctions per year, a mechanism meant to buoy prices so compliance entities make facility emissions cuts instead of purchasing allowances. In theory, the secondary market price should remain well above not only the corresponding auction floor price but also the auction settle, which was $17.87 for the Q1 2020 event.

If the secondary market price remains below the ARP at the time of the second quarter CCA auction in May, the event could be lightly bid, CCA secondary market participants recently said. This would present another diversion from the program's history, as nearly every auction has sold out since 2013.

"Who would bid the next auction if spot is trading $1 lower?" another CCA trader said.

Meanwhile, U.S. West Coast fuel suppliers told OPIS that they were considering the impact of sharp demand declines and fuel sales on their cap-and-trade obligations, and that the possibility of lower obligations for various types of compliance entities due to COVID-19 mitigation orders in California was likely helping put pressure on prices.

The most recent California retail demand analysis by the OPIS DemandPro service showed an 8.4% decline in same-store fuel sales at West Coast retail stations for the week ending March 14. Stringent social distancing measures enacted in the state are expected to further quell fuel demand.

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--Reporting by Bridget Hunsucker, bhunsucker@opisnet.com;

--Editing by Kylee West, kwest@opisnet.com

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Slew of Clean Tankers Booked for Storage as Contango Blows Out

March 30, 2020

Clean petroleum product tankers are being snapped up at a frantic pace as participants look to store distressed cargoes for future sales amid a wide contango that has made such actions profitable, according to market sources and fixture lists.

The charters coincides with moves by refiners in Asia offering cheap barrels of transportation fuels due to swift demand erosion in the face of social distancing measures, including lock downs, that governments in several countries have put in place to control the spread of the coronavirus disease 19 (COVID-19), they said.

At least seven clean tankers were put on provisional charter for storage of up to 180 days, according to a shipping fixture released on Monday, which market sources said was the biggest such booking in one day in years.

Glencore, for example, has the LR2 Eternity and STI Carnaby for 120-180 days storage off Singapore at $44,000/day and $40,000/day, respectively, the list showed. BP, on its part booked the BW Larissa and Celcius Everett for 60-120 days storage at $50,000/day and $46,700/day, according to the fixture, without specifying a location.

Both the BW Larissa and the Celsius Everett are currently in the Sea of Japan, according to IHS Markit ship tracking data.

Shell has the FOS Athen booked for 90-120 days to store 47,000 mt at $52,500/day while Vitol has a yet to be named LR2 on subject also for storage, the fixtures show.

The rates are much higher than that secured about two weeks ago as the influx of bookings by traders to move cargoes West and to store barrels as part of a contango play drove rates higher.

A fixture list released on March 19 showed that BP and Shell took an LR1 each in the West to store 60,000 mt of jet fuel. BP booked the Stena Polaris for 45-90 days at $25,500/day, and Shell the Torm Sara for 90-120 days at $35,000/day.

Even with the higher floating storage costs, traders can still make a profit by storing cargoes for sale in the future due to the wide contango. The Singapore three-month April to July jet fuel contango was $6.81/bbl, while that of gasoline was $4.15/bbl and diesel at $2.79/bbl, according to broker data on Monday.

This works out to about $18/mt per month for jet fuel, $11.75/mt for gasoline and $7/mt for diesel versus storage costs at around $14.70/mt based on Glencore's booking of the Eternity for 150 days.

At the same time, weakness in the physical market has pushed differentials deep into the negative territory with cargoes on an FOB China basis pegged at minus $15.60/mt for jet fuel, $12.30/mt for gasoline and $11.25/mt for diesel, according to traders.

In the face of a dearth of demand in Asia, traders are moving cargoes West at pace and some of these could end up in storage when they arrive in Europe about a month from now, market sources said.

Hefty and potentially record volumes are being lined up for shipment with 980,000 mt of diesel and 390,000 mt of jet fuel scheduled to load in the first half of April bound predominantly for Europe from the Middle East, India and East Asia, according to shipping fixtures.

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--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com, John Koh, John.Koh@ihsmarkit.com;

--Editing by Wu Hanwei, Hanwei.Wu@ihsmarkit.com

Copyright, Oil Price Information Service


COVID-19: Mexico Diesel Demand Fell 50% YOY in March's 2nd Week

March 27, 2020

MEXICO CITY - Mexico's diesel demand was struck during March's second week with a year-over-year (YOY) drop of 50%, reaching 224,000 b/d as supply chain disruptions and factory closures affected the country's economic activity due to the global economic slowdown caused by the coronavirus disease 2019 (COVID-19).

In 2019, diesel fuel demand for the second week of March was strong at 450,000 b/d, and the highest for that year. However, diesel consumption during the second week of March 2020 was 45% lower than the average March 2019 demand, preliminary data from Mexico's Energy Secretariat (SENER) showed.

Mexico diesel demand COVID19 (1)Industrial regions have been hit the hardest. The auto sector powerhouse of Western Mexico consumed 22,000 b/d of diesel, a drop of 80% YOY. Meanwhile, Northeastern Mexico, home to the country's largest industrial companies, consumed 35,300 b/d of diesel, a YOY drop of 46.6%.

Lower diesel demand happed while companies like Audi and Honda were affected by supply chain disruptions from Wuhan, the epicenter of China's auto sector. Both companies closed their auto plants during the third week of March, according to media reports.

Sources told OPIS that Mexico diesel demand is being impacted by the direct damage COVID-19 inflicted on international supply chains. In comparison, gasoline demand has fallen 3.7% YOY to 768,500 b/d during the second week of March.

This week's Mexican gasoline demand estimate could be around 645,000 b/d - 18% lower compared with 2019, according to an OPIS analysis based on preliminary sales data from ONEXPO, Mexico's largest fuel retail association.

One of Mexico's leading national fuel wholesalers told OPIS they experienced a significant drop in diesel sales, adding that the demand picture is worse today than at the beginning of the month.

At the time, one of the national wholesaler's new freight clients requested 1/8 of its contracted volume while a passenger transportation company was billing 25% of their usual demand.

"Today, we see the impact on the coronavirus pandemic," the wholesaler said.

"With a rough calculation, we are seeing today a demand drop today of at least 50% compared with a year ago."

A second wholesaler told OPIS that he has also experienced a significant drop in diesel sales. "We aren't going to realize the whole damage until we see consecutive weeks of quarantine."

The most worrisome part about diesel demand drop is that this is just the beginning, Victor Gomez Ayala, deputy director for economic analysis with Mexico City-based brokerage firm Finamex, told OPIS.

"Mexico's industrial heartland hasn't stopped beating, but it is showing clear signs of a COVID-19 infection," said Gomez, who is the former chief economic adviser to Mexico's Revenue Undersecretary at the end of Enrique Peña Nieto's administration.

Despite a lack of strict quarantine measures at the time, the Mexican economy has already been impacted by COVID-19 via the global supply chain. "We don't expect a fast recovery but rather an increasing downward trend in refined products," he added.

Mexico's manufacturing sector is highly integrated with the rest of the world, connected to countries like Germany, Spain, France, Italy, Japan, South Korea, and the U.S, especially Western Mexico, Gomez said.

"Although we haven't seen a lockdown in Mexico, the industry is undergoing a difficult moment," Gomez said. "This is just the start, and we have to see what the local impact will be with the growing numbers of coronavirus and stricter quarantine measures."

A concern related to lower fuel demand is going to be the resulting lower fuel tax revenue collected by Mexico's Federal government via the IEPS tax, he added.

In 2019, Mexico collected via the IEPS fuel sales tax over Peso 297 billion, US $15 billion based on that year's average exchange rate.

"If the fuel demand collapses, which is something likely, one has to consider the important effect this will have in the government excise fuel tax revenue," he added

President Andres Manuel Lopez Obrador has said he won't raise fuel taxes to fulfill his campaign pledge of keeping low energy prices.

"With lower fuel demand, Mexico could compensate some of its lost IEPS revenue via a higher Pemex's fuel marketing margin considering its dominant market position," said Gomez.

OPIS estimated that Pemex's share of the total gasoline and diesel supply represented 84.9% and 66.2% of the national demand in January, respectively, based on government data and customs information on private fuel imports.

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--Reporting by Daniel Rodriguez, drodriguez@opisnet.com;

--Editing by Lisa Street, lstreet@opisnet.com

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COVID-19: Citi Analysts Bearish on NGLs, Bullish on Plastics

March 26, 2020

The crash in oil prices is threatening to erase the US advantage for chemical feedstocks and olefins, but plastics demand is carrying the day, posited a team of analysts at Citi Research, a division of Citigroup Global Markets Inc., during a recent conference call titled "The Double Whammy Impact of a Lower Oil & Covid-19 on NGLs and Petchems".

While US ethane at 9 cts/gal may be oversold, noted Tony Yuen, Citi's Head of Commodities Strategy Pan-Asia, US propane and butane have "further room to fall" as naphtha becomes a globally competitive chemical feedstock again. 

"The US propane market relies on the export market to balance because without the export market, inventory injection could be more than a million barrels a day at a time when propane inventory is already high after a mild winter," he said. "So what that means is that through the export arbitrage condition, you have low oil prices, which drag down naphtha prices, which then drag down propane prices. Then if you take out the export shipping cost from the US to Asia, you come to the US, where propane prices should be much, much lower than where we are right now just through these types of analysis."

Still, "there’s a tremendous amount of unknowns right now on the midstream side," said Timm Schneider, Citi's Head of Energy & Utility Equity Research for the Americas. Estimating current output levels of roughly 1.8 million b/d of ethane production and 1.7 million b/d of propane and combined 1.5 million b/d of butanes and natural gasoline, Schneider said he believes fractionating units, known as fracs, will begin throttling back. Fractionator utilization “could decline to about 70%. We’re probably running in the 90-95% range right now, so most of these fracs are heavily utilized," he said.

According to data from PointLogic, production of propane, as well as all other NGLs, has not been significantly impacted by the downturn in energy prices. Propane production has been on either side of 1.7 million bbl/day since March 6. However, PointLogic data show that NGL production declined by nearly 2% from March 23 to March 25.

Schneider stated that storage, especially at Mont Belvieu, will be crucial to the health of the US NGL markets. "One big thing to me is having the ability to have storage," he said. "And that’s especially true if we do see some of this contango that’s happening in the oil markets potentially push into the natural gas liquids and purity product side."

Despite the falling NGL prices, the US' cost advantage over Europe and Asia is fading. "At the peak, US advantage was north of $500 per ton and now it’s below $200 per ton," said P.J. Juvekar, Citi's Global Head of Chemicals. "If oil goes to below $20, that advantage pretty much goes away at a ratio of 10-to-1 on oil-to-natural gas price."

Still, the outlook isn't all gloomy. "Lower oil prices does create some winners as well," Juvekar noted. "And one of the big winners was the paint companies and some of the specialty companies that use oil as raw materials, and their margins could expand." That said, 2Q demand forecasts are quite bearish and "the US is going to shut down" in Juvekar's words, pushing that demand out to later in the year. "Even for paint companies, we think paint season could get delayed here as we get into the spring."

However, the effects of worldwide quarantines and widespread illness are supportive of plastics demand, Juvekar said. "so far we haven’t seen a decline in polyethylene demand... a lot of flexible packaging is being used and also a lot of medical packaging,” he said.

The Citi team's comments on supply chain trends line up with what OPIS market reports are showing. The typical demand boost from Asia seen at the end of the region's Lunar New Year holiday in mid-February didn't materialize, and as the pandemic's curve began in Europe during February and now in the Americas in March, worldwide demand is depressed for most markets. 

According to OPIS data, March purity ethane prices have dropped from 15 cts/gal in mid-February to a low of 9 cts/gal late last week, and have now stabilized at around 11-12 cts/gal this week, bearing out Yuen's comment about the product possibly being oversold at 9 cents.

Propane has shed nearly half of its value during the same timeframe, dropping from the low 40s cts/gal range in mid-February to the low 20s cts/gal zone this week. If the slide continues and fractionators begin cutting rates, propane's contango shape throughout the 2020 market echoes Schneider's comments about the importance of storage availability to support weak price environments. Similarly, for normal butane, OPIS data shows prices for current month delivery sliding from 65 cts/gal in mid-February to a record low of 16 cts/gal this past Tuesday. Since then, butane has come back up to the low 20s cts/gal range.

The trends in NGLs extend into the US Gulf Coast olefins markets, as front-month ethylene at Mont Belvieu fell from an already weak 14.5 cts/lb (43 cts/gal equivalent) to a record low of 10 cts/lb (29.7 cts/gal) and Mont Belvieu polymer grade propylene prices dropped from 35 cts/lb (152.25 cts/gal equivalent) to 19 cts/lb (82.6 cts/lb), according to OPIS PetroChem Wire data. 

Plastics prices have been more resilient, for the reasons pointed out by Juvekar. Spot polyethylene has eased a bit, but not to the extent seen upstream. The linear low density grade PE market, used in flexible packaging production, has seen spot prices move from 33 cts/lb (98 cts/gal) in mid-February to 30 cts/lb in early March and currently sits at 28 cts/lb (83 cts/gal), basis FOB Houston. Spot polypropylene is more vulnerable to collapsing demand as it depends on automobile and durable goods manufacture for part of its consumption, but prices so far have only moved from 43 cts/lb (187 cts/gal) to 40 cts (174 cts/gal). Operating rates for US olefins and plastics plants remains high, at 90% or above as a whole.

OPIS PetroChem Wire's Daily Wire provides closing prices and a summary of the day's trading activity for US ethylene, proylene, polymers and upstream NGLs markets. Begun in 2007, its olefins and polyolefins prices serve as benchmarks for a number of physical and swap contracts that trade on the CME/NYMEX Clearport system.

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--Reporting by Julia Giordano, julia@petrochemwire.com, David Barry, david@petrochemwire.com, Bobbie Clark, bclark@opisnet.com and Kathy Hall, kathy@petrochemwire.com;

--Editing by Joe Link, joe@petrochemwire.com

 

Copyright, Oil Price Information Service


COVID-19: Surge in Indian Retail LPG Purchases Likely to Be Short-lived

March 26, 2020

A sudden surge in Indian liquefied petroleum gas (LPG) purchases is likely to give the prompt market a boost as people rush to stock up the cooking fuel but demand is expected to drop in the coming months due to the full lockdown of 1.34 billion people, industry sources said.

"In the midst of a reduction in demand for major petroleum products, there has been an increase in demand for LPG cooking gas," Indian Oil Corp (IOC) said in a press statement on Wednesday.

The company is taking steps to increase LPG yield from its major refineries even as it announced a 25-30% cut in crude throughput.

The Indian government placed the nation on a three-week lock down from Wednesday as they sought to control the coronavirus disease 19 (COVID-19) at an early stage in an effort to avoid a large-scale pandemic that is likely to overwhelm the country's health system.

Overall LPG production should still decrease due to the run cut, said market sources, adding that this could lead to larger imports to fill the supply gaps.

The April Saudi CP, which is the pricing basis for most Indian imports, was bolstered by $20/mt on Wednesday to $181/mt and remained in backwardation.

Indian term lifters have submitted a price of $150/mt for both propane and butane in their first round of April CP recommendations, which is well below that offered by other buyers that were in the range of $175-$250/mt for propane and $195-$240/mt for butane, according to sources.

Some market participants, however, believe that Indian demand will not deteriorate as much as China at the height of its COVID-19 outbreak as a lot more LPG is used in residences as a cooking gas in India.

In China, when traffic controls were imposed, a 21% drop per month was expected in the residential and commercial sector, and a similar scale could translate to 260,400 mt of demand loss in India, given its 91% concentration on residential and commercial uses, as OPIS reported earlier.

India consumed 2.11 million mt of LPG in Feb., a 14% drop on-month and a 4% drop on-year, according to the Petroleum Planning & Analysis Cell (PPAC).

Imports fell 3% on-month to 1.34 million mt in Feb., but was up 10% on-year, based on the PPAC data.

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--Reporting by Lujia Wang, Lujia.Wang@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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COVID-19: IHS Markit Projects 14 Million b/d Demand Contraction in Q2

March 25, 2020

IHS Markit, OPIS parent company, now estimates that global liquid oil demand points to a year-on-year contraction of more than 14 million b/d in the second quarter.

Given the current trajectory in supply, IHS Markit estimates that 2Q2020 global oil stock builds will be in excess of 12 million b/d.

Global markets face an eight-week blitz that could see overall stocks swell by 1 billion barrels cumulatively.

"Such an unprecedented build would overwhelm available storage capacity globally by the middle of the second quarter," IHS Markit calculates.

Oil markets will have to digest this surplus and price the reality that supply will need to be resolved.

IHS Markit believes that "some sort of management or partial management is likely to emerge as paralysis spreads across the sector, but lower prices and shut-ins are likely to occur first."

The market is already starting to see some petroleum refiners cut production and many upstream companies making big cuts in their exploration and production budgets.

Global oil prices have dropped sharply as a result of major shutdowns of activity across the globe including Australia, the U.S., and Europe - areas where COVID-19 has spread even as Asia recovers. India, however, is just what looks like the initial stage of a shutdown.

IHS Markit points out that it is yet to see "a workable path to coordinated supply action on the scale required to mitigate the physical challenge ahead."

Still unknown is whether Saudi Arabia and Russia will come back to the table to agree on some kind of production management strategy following talks falling apart in March with Saudi Arabia vowing to flood the market with more oil and reclaim market share via low prices.

Roger Diwan, vice president of financial services at IHS Markit said this: "The crux of the challenge for oil markets is twofold, the immense size of the surplus and the collapsed timeline of prospective builds, severely limiting the runway of the price war."

Diwan believes that the next few weeks are unlikely to provide material relief to bearish momentum as markets digest and price the reality that supply will need to resolve this balance.

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--Reporting by Ben Brockwell, bbrockwell@opis.net;

--Editing by Steve Cronin, scronin@opisnet.com

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COVID-19 Restaurant Shutdowns Tighten UCO Supply for Biodiesel

March 25, 2020

U.S. biodiesel producers who use used cooking oil (UCO) are becoming increasingly worried that government-mandated restaurant shutdowns because of the coronavirus 2019 (COVID-19) outbreak are beginning to tighten supplies of the feedstock and could lead to reduced fuel production or plant closures.

A market source said biodiesel margins, which remained low despite the December enactment of legislation that restored the $1/gal federal biomass-based diesel blenders tax credit for 2018 and 2019 and extended it through 2022, have recently weakened to break-even or negative territory.

The source blamed much of the recent drop in margins to the ongoing crude production war between Saudi Arabia and Russia that has weakened prices for conventional diesel, but added that the economic hit caused by stay-at-home orders in the wake of the COVID-19 pandemic has "exacerbated" the drop in margins.

Now, producers that use UCO to make their product are having to deal with a growing number of state and local governments deciding to close restaurants or limit their service to delivery or takeout as part of social-distancing directives.

While those businesses that are still delivering food or offering takeout will continue to generate some UCO, sources say that won't be enough to prevent a major drop in the feedstock's supply over the next several weeks. Traditional restaurants, sources added, are unlikely to see the same demand for takeout as they usually would with in-house dining.

As a result, for producers that are already looking at how long they can continue to produce because of poor margins, a drop in feedstock supply may be enough to push them closer to shutdowns.

Jennifer Lapish, a manager at Thumb Bioenergy, said the Sandusky, Mich.-based producer has already scaled back production from around seven to ten batches of biodiesel a week to five.

She said the plant produced just over 500 million gal of biodiesel in 2019. But the latest developments have placed it and other producers in a difficult position.

"It's like whack-a-mole; every time we turn around, we get hit," Lapish said.

Jennifer Case, CEO at New Leaf Biofuel, said the San Diego, Calif.-based producer will have to do a few weeks of UCO collections before knowing the full impact from COVID-19 closures on feedstock availability.

"We have heard that pickup volume has fallen," Nancy Foster, president of the North American Renderers Association, said.

Foster said that part of the issue facing those who rely on UCO is that the product has traditionally been readily sourced, and thus there hasn't been a need in the past to store it in large amounts.

"I mean have you ever seen restaurants closed like this?" Foster asked.

The UCO shortage, or at least concerns that the material will soon become harder to source, have propped up prices for the feedstock, one source said.

The reported price for UCO should have mirrored recent declines in the price of soybean oil, but that hasn't occurred, likely because of future supply concerns, the source added.

Get accurate, up-to-the minute news, pricing and analysis for buying and supplying ethanol-blended fuel and biodiesel with OPIS Ethanol & Biodiesel Information Service. This service includes real-time news alerts, end-of-day pricing assessments, and a weekly newsletter and rack pricing report. Sign up now for a free 3-week trial now!

--Reporting by Patrick Newkumet, pnewkumet@opisnet.com;

--Editing by Jeff Barber, jbarber@opisnet.com

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COVID-19: Fawley Remaining Online After ExxonMobil-UK Government Talks

March 25, 2020


The U.K.'s largest oil refinery, the 270,000-b/d Fawley plant, has cut runs but remains online after discussions between operator ExxonMobil and British government officials, OPIS can reveal.

Fawley refinery managers told workers at the refinery that officials representing the U.K. government have emphasized the need for the country to maintain continued supply of transportation products during the coronavirus disease 2019 (COVID-19) pandemic.

The communication from the refinery's managers comes after talk circulated the refinery that it was going to be shut down, say sources.

A source told OPIS this morning that ExxonMobil was preparing to make a statement underscoring "the vital operation Fawley provides."

In response to enquiries by OPIS, a spokesman for ExxonMobil sent the following statement: "We have robust Business Continuity Plans (BCPs) in place to deal with disruption events that have potential to impact critical business activities over the short or long-term -- including pandemic flu. All our BCPs are reviewed, tested and revised regularly.

"We have mobilised our pandemic flu BCPs at our manufacturing, operating and office sites in light of the increasing number of coronavirus cases in the UK," the statement said.

"Our contingency plans will help ensure continued supply of our products and to minimise any impact on our customers.

"Fawley is committed to helping meet the country's fuel needs, so medical staff and care providers can get to work, emergency services can stay mobilised, and the stream of vital supplies to hospital, medicines to pharmacies, and food and groceries to supermarkets, can continue," the statement concluded.

ExxonMobil cut refinery runs at Fawley by around 70,000-b/d at the beginning of the week after taking the Pipestil 1 unit offline.

Located on the English south coast, Fawley is a critical part of the U.K.'s energy infrastructure because of its links to the nation's largest cities and airports.

Eighty-five per cent of the refinery's output is pumped through underground pipelines as far away as London, Birmingham and Bristol. Pipelines connect the refinery to Heathrow and Gatwick airports.

Diesel represents 29% of the refinery's output, while gasoline, jet and petrochemical feedstocks make up 28%, 11% and 9% of output.

Gasoline and jet refining margins in northwest Europe have slumped into negative territory, OPIS data show. At the start of the week, the OPIS-assessed Eurobob gasoline crack was minus $11.85/bbl, while the jet crack was pegged at minus $1.58/bbl on Tuesday evening. By contrast, the diesel crack stood at $11.82/bbl.

ExxonMobil said on Friday that its 260,000-b/d Port Jerome Gravenchon refinery and its 140,000-b/d Fos-sur-Mer plant in France was going to reduce production.

"The group has implemented its planned procedures to ensure the continuity of its supply to our customers. It will continue to adapt its activity to take account of the evolution of (the) market or any supply, production or storage constraints," Exxon said in a statement.

Adrien Cornet, a CGT union member representing refinery workers, complained last week in a press release that French refiner Total was putting workers' lives at risk by making them work at the facility during the COVID-19 coronavirus outbreak.

On Monday, French media reported that Total was delaying the startup of its 120,000-b/d Grandpuits refinery following planned month-long maintenance due to plummeting demand.

Total was unavailable for comment.

A spokesperson for the German Petroleum Industry (MWV) said he was unable to confirm refinery run cuts in Germany, as the industry body receives data from refiners with a six-week lag.

Ralf Schairer, head of Germany's largest refinery, the 320,000-b/d Miro facility in Karlsruhe, told local media that fuel sales from the facility in April are likely to be up to 50% lower than in previous years. Schairer also estimated that the facility needs to cut staff levels by a half to minimize the risk of infection.

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--Reporting by Anthony Lane, alane@opisnet.com, Selene Law, slaw@opisnet.com;
--Editing by Paddy Gourlay, pgourlay@opisnet.com



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COVID-19: India Readies Force Majeure in Fight Against Virus in Nod to China

March 25, 2020

In a move right out of the Chinese playbook on the coronavirus (COVID-19) playbook, India has readied the almighty force majeure clause as 1.34 billion people get ready to deal with the consequences of a lockdown on a scale that the world has never seen before.

Amid all the chaos triggered by such stay-at-home orders is the need for governments to keep their supply chains moving, but port congestion and operational delays are inevitable as extra health checks are made on workers and others struggle to get to their work place as was the case in China when such measures were imposed locally.

"Major Port Trusts may consider COVID-19 pandemic as a valid ground for invoking Force Majeure Clause on port activities and port operations," the Shipping Ministry said in an e-mailed addendum dated March 24, as several orders were made, including the imposition of a 14-day quarantine before the lock down was mandated.

Industry sources said that India is laying the groundwork to save its industries from the perils caused by this virus as numerous Indian ports including Mundra, Krishnapatnam, Karaikal, Gangavaram and Dhamra triggered the clause on Tuesday as the government imposed a minimum three-week stay home order.

"It's a genuine situation brought about by circumstances beyond anybody's control, so they are in a way protecting the country's interest," said one shipping source, adding that the port force majeure is a means to limit claims of demurrage/detention or any other delays, which could send companies into bankruptcy if unchecked.

As China faced up to the worst of the COVID-19, the China Council for the Promotion of International Trade (CCPIT) announced that it would help affected companies apply for force majeure actions, which essentially excuses them from contractual obligations due to events beyond their control.

On Feb. 2, the CCPIT issued its first COVID-19 related force majeure, creating in the process a compilation of typical cases and assisting companies to effectively use the force majeure system in order to safeguard their rights and interests, according to a website posting dated March 13.

"As of March 3, 101 commercial certification authorities in the national trade promotion system have issued a total of 4,811 certificates of force majeure, involving contracts with a gross amount of approximately RMB 373.7 billion yuan ($52.9 billion)," the CCPIT said.

Sources said the Indian government, while allowing exceptions to facilitate the movement of key items such as food, medicine and fuels, is also bracing for the worst on expectations of sharp declines in the economy.

"The impact will also be quite dramatic as we saw in China. We will see a significant drop in oil demand in April, easily about 45-50% (year-on-year) drop in absolute demand of transportation fuels," said Premasish Das, IHS Markit research and analysis director in Singapore.

"We are talking about around 1.5 million barrels a day (b/d) of lost demand, and there will be a rippling effect." These are preliminary estimates as the lockdown is only in its infancy, he added.

The issues facing India are complex and imposing draconian measures may be difficult to enforce with government agencies issuing clarification and addendum to orders all Tuesday as compliance issues and problems were raised, sources said.

"Vehicles/trains/air cargo/ship cargo carrying goods for trade or essential goods and supplies are exempted from this prohibition along with their crew, driver, helper, cleaner etc. subject to their thorough screening by medical staff for COVID-19," the Ministry of Home Affairs clarified a Shipping Ministry order in a note to port operators.

For now, the energy sector is bracing for multiple disruptions including demand destruction, refinery run cuts, shipping delays and downstream closures if events in China were replicated, they said.

Although for now the number of COVID-19 cases in India are tiny at just over 550 compared with more than 81,000 in China, there are fears of an uncontrolled spread as seen in several European countries including Italy and Spain.

You have also seen how the most powerful nations have become helpless in the face of this pandemic," Prime Minister Narendra Modi said in a live televised address on Tuesday. "This lockdown will be for 21 days. This is to save India, save each citizen and save your family. Do not step outside your house."

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com; additional reporting by Thomas Cho, Thomas.Cho@ihsmarkit.com

--Editing by Carrie Ho, Carrie.Ho@ihsmarkit.com

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COVID-19: Grangemouth Turnaround, Power Plant Work Postponed: Sources

March 24, 2020

Major turnaround work due to take place next month at the 210,000-b/d Grangemouth refinery in Scotland and construction of a new 350 million-pound power plant have been postponed amid the coronavirus disease 2019 (COVID-19) outbreak, OPIS has learned.

"The shutdowns are cancelled," a source told OPIS, referring to the turnarounds at the Petroineos-operated refinery and petchems plant.

The turnaround at Train 3 of the Ineos-operated Forties Pipeline System, which brings North Sea crude to the refinery, has also been shelved until later in the year.

The maintenance on the train was due to last up to 12 weeks and begin on March 29. OPIS revealed earlier this year that turnaround work at the refinery and petchems plant at Grangemouth would begin at the start of April.

OPIS also understands that multimillion-pound work to construct a combined heat and power (CHP) plant on the Grangemouth site has also been postponed.

"The new power station has been put back," a source told OPIS, referring to a plan to build a 350 million-pound project to replace the refinery's 40-year-old power plant. The source suggested that the current economic turmoil caused by the COVID-19 outbreak was responsible for the postponement.

OPIS revealed back in February 2019 that Ineos planned to start construction of the new plant in the fourth quarter of 2020.

Ineos did not respond to a request for comment by presstime.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Anthony Lane, alane@opisnet.com;

--Editing by Barbara Chuck, bchuck@opisnet.com

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COVID-19: West Coast Jet Fuel Industry Adjusts Supply Ops Due to Demand Destruction

March 24, 2020

As it becomes more apparent that the impacts of coronavirus disease 2019 (COVID-19) on domestic and international travel could potentially go on for weeks, if not months, jet fuel traders and suppliers on the U.S. West Coast are working together to avoid supply lockups as storage tanks fill.

Los Angeles jet fuel prices are currently at 17-year lows around 71cts/gal.

Trade discounts are the deepest seen in years at 35.50cts below the NYMEX May ULSD futures.

"We're not at peak yet of this whole deal," said one West Coast jet trader.

"What do we do if we get to a full ground halt? These are all things we need to think about. Demand will get worse. You may see differentials fall to levels we haven't seen before."

LAX Fuels Consortium manages refueling of aircraft and required infrastructure in the Los Angeles region. LAX Fuels General Manager Enrique Gaytan said members are in discussions with suppliers to make adjustments and that "people are positioning themselves as best as possible."

"Everyone is taking a different approach, trying to iron out details and trying to catch up," Gaytan said. "We have seen a reduction in total volume. People are not taking full inventories."

The West Coast trader said it's likely most airlines have been proactively working with suppliers to prevent containment problems.

"Suppliers feel the pain just like we do," said one West Coast trader. "Cutting batches is not something we want to do."

Cutting batches may not be something air carriers want to do, but with the top five airlines at Los Angeles International Airport (LAX) recently announcing large reductions in capacity over the coming weeks, it's something they will all have to do.

American Airlines said March 10 that it will reduce international capacity by 10%, including a 55% reduction in transpacific capacity, and decrease domestic capacity by 7.5% in April. American Airlines flights accounted for 20.55% of passengers at LAX in January.

Delta Air Lines said March 10 that it would reduce international capacity by 20%-25% and decrease domestic capacity by 10%-15%. Delta flights made up 17.56% of the LAX market in January.

United Airlines said March 20 that it would reduce its international schedule by 95% for April, including a temporary suspension of all flights to Canada, effective April 1. United flights accounted for 13.50% of market share at LAX in January.

Southwest said March 16 that it would reduce available seat miles capacity by at least 20% from mid-April through early June. In January, Southwest Airlines flights made up 9.85% of the passenger share at LAX in January.

Alaska Airlines said March 10 that it would reduce April capacity by at least 10% and May by at least 15% from original expectations. Alaska Airlines flights made up 7.85% of LAX's January market.

"When you've got all the airlines (making cuts) you're not burning the fuel you normally would," a second West Coast jet fuel trader said. "The real story is the refiners. Where are they at? They are going to have to cut production."

OPIS has reported that Phillips 66 confirmed on March 24 that run cuts in its refining system are part of actions taken in response to the challenging business environment that has resulted from the outbreak and spread of COVID-19.

The energy company's refinery utilization rate of 90% previously given for first-quarter guidance is now looking more like a number in the low to mid-80s, said Jeff Dietert, head of investor relations, in a Tuesday conference call with equity analysts.

Phillips 66 characterized its exposure to COVID-19's especially harsh impact on jet fuel demand as a small issue. The company makes about 225,000 b/d of jet fuel, about half of which can be pushed into gasoline or distillate, Brian Mandell, executive vice president of marketing and commercial, said.

"We're left with a relatively small amount at most of our refineries," he said, adding that the company is working with airlines and others to take the jet fuel. "We don't feel that's a problem for us."

OPIS notes that the Phillips 66 Los Angeles refinery reportedly began reducing runs last week.

Marathon Petroleum Corp. began making production adjustments as well.

"MPC's refinery and marketing teams work together to continuously monitor market conditions and adjust our crude oil acquisition, refining run rates, logistics systems and marketing," a Marathon representative told OPIS via email. "As the unique market conditions associated with the extraordinary global effort to combat COVID-19 evolve, we are optimizing our system accordingly."

Marathon operates the largest West Coast refinery, a 363,000-b/d Los Angeles plant, as well as a 161,500-b/d refinery in Martinez, Calif., in Northern California.

Jet fuel inventory levels in California decreased by 1.5% for the week ended March 13, to 1.76 million bbl. Year-ago levels were closer to 2.3 million bbl, according to the California Energy Commission's Weekly Fuels Watch Report.

The OPIS West Coast Spot Market Report is the nation's premier price index for refined petroleum products. 

Get a complete 5-day picture of the Los Angeles, San Francisco and Pacific Northwest refined spot markets plus West Coast crude oil postings, PADD 5 DOE inventory levels, feedstock values and more.  Start my 5-day free trial!

 

--Reporting by Bayan Raji, braji@opisnet.com; Kylee West, kwest@opisnet.com; and Beth Heinsohn, beheinsohn@opisnet.com;

--Editing by Lisa Street, lstreet@opisnet.com

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COVID-19: China to Reemerge as Major Oil Buying Force As Travel Ban Lifted

March 24, 2020

Chinese oil demand is set for a sharp recovery as more travel curbs are lifted, breathing new life into its beleaguered industries and retail sectors but is still a long way from achieving the same level of growth as seen in past years, industry sources said.

China will lift travel curbs on Hubei province, effective March 25 for areas outside Wuhan and from April 8 for Wuhan city, two-month after the lock down, according to local official announcement on Tuesday. Hubei and Wuhan were at the epicenter of the coronavirus pandemic (COVID-19) that is now sweeping the rest of the world.

Local media reported 203 new confirmed cases of COVID-19 on Tuesday, with 39% imported from overseas amid fears of a second wave of infections, which has led China to impose entry restrictions.

Total China oil demand loss was estimated to shrink to less than 1.5 million b/d and 0.5 million b/d, in March and April, respectively, as opposed to a massive 5.6 million b/d slump in February, or 40% compared to the same period last year, according to an estimate by IHS Markit in a March 18 report.

"China has, unlike most countries, definitively passed the nadir of the COVID-19 pandemic," said Sophie Fengli Shi, downstream associate director at IHS Markit in Beijing and one of the authors of the report.

"While oil demand outside of China is still in the midst of an unprecedented decline, consumption within the country is now firmly on the upswing."

Gasoline, which was one of the worst hit oil product at the peak of the COVID-19 outbreak, is expected to record a speedy recovery as traffic restrictions are lifted.

Highway traffic volumes rose by 13.24% on-year by mid-March, according to the Transportation Department, while oil sales by Chinese retail stations have recovered to above 80% of last year's level, IHS Markit data showed.

Its further growth, however, could be capped by a drop in automobile sales due to weaker consumer spending associated with economic slowdown, according to the IHS Markit report.

"We expect that the after effects of COVID-19 on the economy and on consumer behavior, including traveling activities and automobile purchases will linger for a long period of time, casting prolonged ripple effects on oil demand," the report said.

Jet fuel may be the slowest oil product to recover and is likely to be a drag on overall demand as more travel bans are imposed elsewhere in the world, sources said.

A similar pattern is expected as during the SARS outbreak where air traffic was slow to show signs of recovery due to the general public's "fear of flying" for a long period of time, according to the IHS Markit report.

"In our base case scenario, we expect that oil demand will be mostly brought back to last year's levels in the second quarter and some mild growth will be registered in the second half (although the growth will be down by approximately 200,000 b/d from our previous forecast)," according to the report.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

 

--Reporting by Lujia Wang, Lujia.Wang@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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COVID-19: Neste delays maintenance at Porvoo amid pandemic

March 23, 2020

Finland's Neste said on Monday that it would delay the scheduled turnaround at its refinery in Porvoo and would do only the most business-critical maintenance works planned for April- June.

The Government of Finland declared a state of emergency as of last week due to the coronavirus 2019 (COVID-19) outbreak.

The new schedule will be announced by the end of the third quarter of 2020, the company said, adding that the rest of the turnaround works are expected to be finalized in 2021.

The Porvoo complex has a refining capacity of 206,000 b/d or 12 million tons of petroleum products a year.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

-- Reporting by Nandita Lal, nlal@opisnet.com;

--Editing by Tim Wright, twright@opisnet.com

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COVID-19: Lufthansa Declares Force Majeure; Others Predicted to Follow

March 23, 2020

Lufthansa has declared a force majeure on its supply contracts, a company representative told OPIS on Monday, while analysts believe that other airlines will follow suit.

A Lufthansa spokesperson on Monday told OPIS that the force majeure will be in place for the foreseeable future.

Lufthansa has cut 90% of its long-haul flights, and European short-haul flights have been reduced by 80%, the company said in a statement last week.

Finnair would not comment on force majeures, but the airline previously told OPIS that it has reduced its contractual fuel off-take.

A source close to another large European airline told OPIS on Monday that the company has minimized its jet fuel off-take.

"I don't think Lufthansa will be the only airline to issue a force majeure. It will be the case with some of the airlines that have a liquidity problem. They need to adjust expenses somewhere," Oliver Simkovic, an analyst at Raiffeisen, told OPIS on Monday.

All European airlines have reduced their flights in response to coronavirus disease 2019 (COVID-19), which has seen countries across the region impose travel bans and restrict freedom of movement.

In response, jet fuel prices in Europe have plummeted to historic lows, with OPIS on Friday pegging the jet barge differential at $72.75/mt below the April low-sulfur gasoil futures contract.

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--Reporting by Selene Law, selene.law@ihsmarkit.com;

--Editing by Anthony Lane, alane@opisnet.com

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India LPG Demand Loss May Mirror 21% Drop in China on Lock Down

March 23, 2020

A lock down in India amid the coronavirus pandemic (COVID-19) could further dampen demand in the Asia LPG market, which is already languishing in unsold cargoes as the CP paper swap reached historic lows, days before Saudi Aramco sets its April CP, industry sources said.

India put traffic restrictions in over 75 districts across the country. Major cities such as the capital New Delhi, Mumbai, Bangalore, Chennai, Hyderabad and Kolkata have been placed under travel, work and movement restrictions until March 31, according to local media citing government officials.

Prior to the lock down, spot demand was already muted in March, with the latest tender heard back in early March by Indian Oil Corp (IOC) seeking two evenly-split full cargo for April delivery, and sources said they may eventually have only bought one cargo. However, this could not be confirmed.

India imported in 2019 a monthly average of 1.24 million mt of LPG, with 54% propane and 46% butane, based on IHS Markit's Global Trade Atlas (GTA).

Its LPG usage is highly concentrated in the residential and commercial sectors, approximately 91% of total demand, while China uses 60% in the same sector, followed by 25% as chemical feedstock and 11% for industrial uses as a fuel, based on IHS Markit data.

In China, when traffic controls were imposed for Hubei and other provinces across the country, LPG demand for residential, commercial and industrial use were the worst hit with a reduction by 700,000-800,000 mt in February, a 21% drop from January estimates, according to an IHS Markit special report on NGL titled "Unexpected black swan event impacting Chinese LPG market in the first quarter".

Its chemical uses, especially using propane as a feedstock for propane dehydrogenation (PDH) units, were less impacted due to a more comprehensive and longer value chain, said the report.

A same degree of reduction could translate to 260,400 mt or around six VLGC-sized cargoes of LPG demand loss for India, market sources said, which they said is to be expected and possibly even exceeded given India's skew toward the residential and commercial sectors.

Real-time LPG pricing helps you see how global markets fit together with the OPIS Global LPG Ticker.

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--Reporting by Lujia Wang, Lujia.Wang@ihsmarkit.com;

--Editing by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com

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COVID-19: Analysis: As Oversupply Looms, US Crude Oil Set for Storage Play

March 20, 2020

Unprecedented demand destruction brought by the coronavirus disease 2019 (COVID-19) pandemic and a sharp increase in Saudi Arabia's exports is expected to continue to widen the contango structure in West Texas Intermediate futures, signaling that excess U.S. crude oil will now head into storage as the export window shuts.

As the front-month WTI contract has lost almost two-thirds of its value year to date, WTI's forward curve is turning deep in contango, when longer-dated futures trade at a premium to spot, encouraging participants to keep oil in storage and sell it for profits later in a record surplus market, analysts said.

On Friday, the one-year WTI premium between May 2020 and May 2021 climbed to nearly $10/bbl this week, a level last seen in early 2016, and the three-month May-August WTI spread widened toward $4/bbl.

Saudi Arabia's decision to relinquish its role as the supplier of last resort and join other producers in flooding the spot market with cheap heavy sour oil should put more pressure on Brent, making WTI unattractive for export, analysts said. They also expect the WTI-Brent discounts to turn into premiums, as U.S. refiners buy the cheaper heavier crude and as U.S. shale producers shut in production at lower prices.

Tank Tiger, a Princeton, New Jersey-based broker in the U.S., Caribbean and South American tank space and terminaling services, reported its busiest week since the company started business in 2015, with six times more customer activities than it has in a normal week.

"All of the storage that everyone wants is basically gone, and what's left isn't cheap anymore," said Tank Tiger CEO Ernie Barsamian, a 30-year veteran in the petroleum terminal business. While traders and users have already hoarded available tanks, Barsamian said that storage on a sub-lease basis is still available for the right price.

Andy Lipow, president of Houston-based consultant Lipow Oil Associates, said he expects to see keen interest in the biggest U.S. storage facilities such as the Cushing, Okla., storage hub, the LOOP underground caverns in Louisiana and the Pierce Junction storage facility in south Houston. "The crude oil market is oversupplied, and excess volumes are seeking storage locations," said Lipow.

Products in Contango Too; WTI at Premiums to Brent

On refined products, Lipow said he expects gasoline inventories are going to build due to social isolation as COVID-19 hits the U.S., and a contango will develop in New York Harbor, the delivery point of NYMEX RBOB futures, as stockpiles in the U.S. East Coast start rising.

The one-year contango spread for NYMEX RBOB between April 2020 and April 2021 widened to nearly 30cts/gal on Monday, a level last seen at the height of the 2008 global economic crisis, highlighting the historic drop in fuel demand.

Similarly, the one-year contango for NYMEX ultra-low-sulfur diesel has climbed to 20cts/gal, last occurring in 2016.

On Thursday, Colonial Pipeline Co. said it will slow fuel flows by 20% on its main route supplying refined products to the U.S. Northeast from U.S. Gulf Coast refiners, underscoring reduced downstream demand due to COVID-19.

Michael Tran, commodities strategist at RBC Capital Markets in New York, said the cost of storing a barrel at Cushing has doubled in the past several weeks, and floating storage costs on Very Large Crude Carriers (VLCC) have also risen significantly as Saudi Arabia chartered a number of VLCCs to move its crude for export.

Tran said higher tanker freight costs and the small WTI discounts to Brent at just over $3/bbl on Friday discourage U.S. crude export.

"Given the current pricing economics. We don't see exports as being economically viable at this point. We expect the U.S. crude exports are going to be quite tepid over the coming weeks," Tran said.

Sandy Fielden, director of oil and products research at Morningstar in Austin, Texas, said Brent's rapidly collapsing premiums to WTI at $1.74/gal on March 13 barely covered the pipeline shipping costs for WTI from Cushing to the U.S. Gulf Coast, let alone the freight costs to overseas markets, rendering WTI less competitive versus Brent from Saudi and Russian barrels in international markets.

"In effect, the narrow Brent premium traps WTI in the U.S. market," Fielden said.

Access live gasoline, diesel and jet fuel spot pricing throughout the trading day.

Easily predict where rack prices are headed with the OPIS Spot Ticker. This innovative tool is available online or via mobile app and displays real-time cash prices for all grades of gasoline, diesel, jet fuel and ethanol in all U.S. spot markets. Start a free trial to the OPIS Spot Ticker

 

--Reporting by Frank Tang, ftang@opisnet.com;

--Editing by Denton Cinquegrana, dcinquegrana@opisnet.com

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California Suppliers Mull Carb. Obligation Impacts as CCA Prices, Fuel Demand Fall

March 20, 2020

Prices for California Carbon Allowances (CCAs), the primary compliance instrument in the state's Cap-and-Trade Program, have crashed more than $4/mt over the past three weeks and are now sitting below auction reserve prices, at multiyear lows.

The drop is tied to the broader economic and global market plunge in response to the global coronavirus disease 2019 (COVID-19) pandemic, but West Coast fuel suppliers say anticipation of lighter compliance obligations in 2020 may be playing a role as well.

California retail demand analysis by the OPIS DemandPro service showed an 8.4% decline in same-store fuel sales at West Coast retail stations for the week ending March 14, and stringent social distancing measures enacted in the state are expected to further quell fuel demand.

Gov. Gavin Newsom announced a shelter in place order for the state on Thursday to try to mitigate the spread of COVID-19.

Obligated parties under the Cap-and-Trade Program must surrender compliance instruments (either allowances or offsets) equal to their yearly emissions on a compliance schedule established by the California Air Resources Board (CARB).

Obligations for fuel suppliers are dependent on the amount and type of fuels they sell.

Traders at multiple major West Coast fuel suppliers told OPIS that they are closely considering the impact of reduced demand on their obligations.

Anticipation of reduced obligations are "why prices are getting killed," said one trader. "But it looks like they've dropped too far."

Another trader with a different supplier attributed the recent drop to lower demand leading to lower observations, as well as "risk off trader length."

The big unknown, they both agreed, is how long fuel demand remains crimped, which makes the most advantageous trading strategies at this time of extremely low allowance prices unclear.

"Some demand is still good right now, but other locations are already seeing 50% drop," said the first trader, and it's unknown whether these demand depressions will be "1-2 months" or "further out."

Cheap allowances are proving attractive to obligated parties looking at satisfying compliance obligations in future years.

Traders opinions were mixed on whether or not to jump into the fray to stock up on carbon allowances now, or to wait to see if prices will continue to fall, however.

Meanwhile, with secondary-market CCA prices trading well below the program's quarterly auction reserve price, there is a good chance that if that continues to be the case, the next auction, in May, could be undersubscribed, according to Clear Blue Markets analyst Nicolas Girod.

Traders agreed. "Who would bid the next auction if spot is trading $1 lower," the first trader said.

If the auction does not sell out, that reduces available allowance supply. In the long term, reduced supply could actually end up being bullish for prices, Girod noted.

For the time being, the currently reduced prices for CCAs are trickling down the fuel supply chain. The OPIS cap-at-the-rack (CAR) assessment, which estimates the impact of cap-and-trade compliance costs at the wholesale rack level, were 12.07cts/gal for CARB gasoline and 15.33cts/gal for CARB diesel on Thursday. Those prices were 14.36cts/gal and 18.25cts/gal, respectively, at the beginning of March.

Average California retail prices for regular gasoline were $3.25/gal Friday morning, down from $3.48/gal on March 1.

Easily track and manage carbon compliance costs to your business.

Ever-evolving climate change policies impose a growing influence on traditional fuel markets and carbon credit markets can be extremely volatile.  Easily track and manage carbon compliance costs to your business with the OPIS Carbon Market Report. Start My Free 10-Day Trial Now!

 

--Reporting by Kylee West, kwest@opisnet.com, and Bridget Hunsucker, bhunsucker@opisnet.com;

--Editing by Lisa Street, lstreet@opisnet.com

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Ethanol Industry Asks Washington For Help to Avoid a 'Potential Collapse'

March 20, 2020

The head of the Renewable Fuels Association (RFA) is calling on Congress and the Trump administration to "act immediately to avoid a potential collapse" of the industry because of the coronavirus disease 2019 (COVID-19) pandemic.

In a conference call with reporters Thursday, RFA President and CEO Geoff Cooper said that even before the coronavirus began to "roil" the U.S. economy, the ethanol industry had experienced demand reductions and "challenging economics" because of the administration's expanded use of small refinery exemptions (SREs) from Renewable Fuel Standard (RFS) compliance, the loss of a major export market due to the U.S.-China trade dispute and the sharp decline in crude prices after OPEC and Russia failed to agree on production cuts.

"This is not just the perfect storm, it's the perfect tsunami," Cooper said.

Cooper, who was joined on the call by several CEOs of RFA member producers, said the trade group has received numerous reports of plants reducing or idling production in response to historically low prices.

OPIS on Monday assessed Chicago Argo ethanol, a key industry benchmark, at $1.075/gal, down 10.5cts from Friday to the lowest level since May 2003, when it was assessed at $1.06/gal. On Tuesday, OPIS marked Chicago Argo ethanol at 99cts/gal, a new record low.

"These are some of the worst margins we have ever seen in the ethanol industry," Cooper said. "To help our industry survive, we are calling on Congress to take action immediately to avert a potential collapse in the ethanol industry."

Cooper cited discussions in Washington about providing support to beleaguered U.S. oil and gas producers, including the administration's plan to buy oil for the Strategic Petroleum Reserve, and asked that aid also be provided to the renewable fuel producers.

He said the Trump administration should take the following steps to provide relief to the industry:

  • Immediately announce that it will not appeal the U.S. 10th Circuit Court of Appeals' January ruling that would all but eliminate EPA's ability to grant SREs and make clear that it intends to apply the decision nationally. EPA must say by Tuesday whether it plans to appeal the decision.
  • Increase the 2020 Renewable Volume Obligation (RVO) by 500 million Renewable Identification Number (RIN) credits to comply with a 2017 ruling by the U.S. Court of Appeals for the District of Columbia that found the agency had improperly reduced renewable fuel blending targets in the 2016 RVO. EPA in December said it planned to make a decision on that court's remand early this year.

Cooper said the industry's top priority now is retaining its skilled workforce and saving jobs. "Every effort should be taken to do this, particularly given that many plants will have to temporarily suspend production."

Randy Doyal, CEO of Minnesota-based producer Al-Corn Clean Fuel, said he believes it "looks almost inevitable" plants will shut down in the near future.

"It is going to take a while for all of us to recover from the impacts of all of the shutdowns," Doyal said. "But at the same time, we are doing the best that we can to help our people."

Further, Doyal said he had not seen conditions in the industry this bad since the 2008-2009 Great Recession, adding that that was fairly short-lived. "This one I think we will feel for much longer than we want. We're trying to weather this storm as well as we can, but it's not going to be good."

Jeanne McCaherty, CEO of Guardian Energy Management, another Minnesota-based ethanol producer, said estimates that the coronavirus could reduce U.S. transportation fuel use by between 15% and 60% would result in "devastating demand" destruction for ethanol, adding that more producers have begun to come up against physical logistic constraints, chief of which is storage. "We and our customer have defined storage space and may have to shut down just for that. That's the first thing we look to and obviously the second thing is margin."

She said at an ethanol price of $1/gal or below, "no one in this industry is covering their variable costs. It is just not a viable option going forward."

RFA Chief Economist Scott Richman, who was also on the call, said it's "not just the magnitude in the downturn of fuel consumption, but also the duration of that downturn."

He added that ethanol prices at about $1/gal mean that most producers are "losing 25 cents on each gallon they produce. We're going through something that most of us have not experienced in our lifetimes."

Get accurate, up-to-the minute news, pricing and analysis for buying and supplying ethanol-blended fuel and biodiesel with OPIS Ethanol & Biodiesel Information Service. This service includes real-time news alerts, end-of-day pricing assessments, and a weekly newsletter and rack pricing report. Sign up now for a free 3-week trial now!

 

--Reporting by Patrick Newkumet, pnewkumet@opisnet.com;

--Editing by Jeffrey Barber, jbarber@opisnet.com

Copyright, Oil Price Information Service


Asian Refiners Plan Run Cuts, Maintenance as Demand Ebbs

March 20, 2020

Asian refiners outside China are planning run cuts and maintenance as a way of managing a collapse in global oil demand due to the spreading coronavirus 2019 (COVID-19) just as those on the mainland crank up crude throughput as the nation gets back on its feet.

Among refiners that are now considering cuts include Taiwan's CPC Corp. while others such as Shell in Singapore, SK Energy in South Korea and Trans Pacific Petrochemical Indotama (TPPI) have scheduled maintenance shutdowns, according to industry sources.

Taiwan:

CPC Corp. is considering a run cut by 5% at the 300,000 b/d Talin complex, although the reduction cannot be confirmed for now as the state-run refiner has refined product commitments in April to fulfill, according to the traders.

It does not have any plans for maintenance works in April and May.

Formosa Petrochemical (FPCC) already closed an 84,000 b/d residue fluid catalytic cracking (RFCC), a 180,000 b/d crude distillation unit (CDU) and an 85,000 b/d residue desulfurization unit (RDS) for maintenance works earlier this month, as reported earlier.

The works were expected to last until late April.

South Korea:

SK Energy plans to carry out turnaround at the No. 5 260,000 b/d CDU at its Ulsan complex in late May-late June period, industry sources said.

A company spokesperson declined to confirm the shutdown, saying they do not comment on maintenance works.

The nation's largest refiner has already cut runs at the 840,000 b/d complex by as much as 15% this month.

Hyundai Oilbank (HOB) will shut a 53,000 b/d fluid catalytic cracker (FCC) for scheduled turnaround at the same time as the No. 2 360,000 b/d CDU at the Daesan refinery, according to industry sources.

HOB is expected to shut the CDU from April 15 to May 7, while another CDU with 160,000 b/d capacity will stay on-line, as reported earlier.

During this period, it also plans to raise capacity of its residue desulfurization unit (RDS), according to the sources, although they declined to comment on how much the company will expand.

The country's smallest refiner by capacity has already cut runs by 10% since the end of 2019 and has been operating the two CDUs at 90% since then.

Japan:

JXTG Nippon Oil & Energy Corp. plans to take a 65,000 b/d CDU at the Kawasaki refinery off-line for about three months from mid-March to late June for scheduled turnaround, as reported earlier.

The other CDU at the site, with a capacity of 170,000 b/d, will remain running.

China:

Having survived COVID-19, China can now boast an improvement in its throughput by 700,000 b/d in March as the nation recovers, according to an IHS Markit report from the downstream team in Beijing. Refiners undertook the steepest throughput cuts of as much as 3.3 million b/d in February, a 26.5% reduction from a year earlier.

"With oil demand expected to contract for at least another month and with refineries' product tanks running almost full after a strong build throughout February, we see it necessary for refineries to extend their production cuts into March and April," they said in the report.

Run cuts in March and April were estimated to narrow to 2.6 million b/d and 1.3 million b/d, respectively, on a yearly basis under the base case scenario, the report showed.

China's oil demand declined by 5.6 million b/d in February, or 40% from the same period of last year. February was the worst month for Chinese oil consumption as cities and entire provinces were locked down to curb COVID-19 and also portends to what can be expected in some parts of the world where the virus is rampant.

Singapore:

Shell is set to shut a 210,000 b/d CDU at its 500,000 b/d Pulau Bukom refinery for scheduled turnaround from April 18, according to traders.

The works were expected to be completed by the end of May. Shell officials have not replied IHS Markit OPIS request for comment.

Indonesia:

Trans Pacific Petrochemical Indotama (TPPI) will conduct five-day maintenance in mid-April as planned, a company official said.

During the period, the company will shut its 50,000 b/d reformer and lower runs at its 100,000 b/d condensate splitter, the official said.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

 

--Reporting by Jongwoo Cheon, Jongwoo.Cheon@ihsmarkit.com, Thomas Cho, Thomas.Cho@ihsmarkit.com, Masayuki Kitano, Masayuki.Kitano@ihsmarkit.com, Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com;

--Editing by Sok Peng Chua, SokPeng.Chua@ihsmarkit.com

Copyright, Oil Price Information Service


Colonial Pipeline to Slow U.S. Gulf Coast-NY Harbor Product Flow by 20% as Demand Falls

March 19, 2020

Colonial Pipeline Co. will slow fuel flows by 20% on its main route supplying refined products to the U.S. Northeast from U.S. Gulf Coast refiners in response to reduced downstream demand due to the coronavirus disease (COVID-19) pandemic, the company said Thursday.

Colonial Pipeline said while it has been operating its pipelines at or near capacity and delivering on schedules in recent shipping cycles, the company realizes the impact of COVID-19 on demand and is taking proactive measures to help all shippers manage their inventory during this "unprecedented" situation.

"Based on input from shippers, our continued evaluation of the marketplace, and a thorough review of several options, Colonial will reduce flowrates on Lines 1 and 2 beginning next week. A reduction of approximately 20% in modified flowrates is currently targeted to begin Tuesday, March 24, 2020," the company said in a shipper bulletin Thursday afternoon.

The company, which operates 5,500 miles of pipelines between Houston and Linden, N.J., added that its plan is subject to change due to rapidly changing market dynamics.

OPIS notes that other product pipelines will likely follow suit, and refiners in the U.S. Gulf Coast will have to cut back production due to rapidly falling demand.

The move by Colonial signals demand destruction is starting to hit downstream, as fuel sales at some U.S. gas stations have dropped significantly in the last few days with most Americans telecommuting to work while staying at home to avoid social gatherings altogether, with the number of confirmed COVID-19 cases in the U.S. soared above 10,000 on Thursday.

Still, market sources said retail fuel sales remained surprisingly strong in parts of South Georgia and Alabama, but that's likely confined to only a few areas.

For Week ending March 14, year-on-year same store retail sales were down 2.4% for the entire U.S., according to OPIS Demand Pro service, which analyzes national retail fuel volumes.

Looking at regional arbitrage economics, the normal pricing relationship between U.S. Gulf Coast and New York Harbor CBOB gasoline markets inverted earlier this week, with Gulf Coast mogas costing a few pennies more than New York Harbor's, in contrast to NYH's typical few-cent premiums over those in USGC. The two markets were near parity on Thursday.

On ultra-low-sulfur diesel, New York continued to hold 5cts/gal plus premiums to the Houston markets over the last two weeks.

Line space on Colonial Pipeline's Line 1, which carries gasoline, saw values in the 1-2.65cts/gal discount to tariff range before this week, when values jumped to about even with pipeline costs. Line 2, which carries distillate material, has been 0.40-0.50cts/gal under tariffs for the last several sessions.

In New York Harbor, mogas cash prices regained some ground Thursday. However, this week has seen RBOB and jet fuel hit 18-year lows in the region, with ULSD around its lowest levels since 2016. With space on Line 3 - Colonial Pipeline's main refined products line between Greensboro, N.C., and Linden, N.J. - last valued around 0.10cts/gal above tariffs, there appears to be relatively limited interest in shipping barrels from the Southeast to the New York Harbor region.

OPIS DemandPro provides actual retail sales data collected directly from station operators. Gain the advantage in your market by knowing local gasoline sales volumes at all types of sites, including chains, new era marketers and branded retailers. Request a demo

 

--Reporting by Frank Tang, ftang@opisnet.com, Rachel Stroud-Goodrich, rstroud-goodrich@opisnet.com, Cory Wilchek, cwilchek@opisnet.com, Denton Cinquegrana, dcinquegrana@opisnet.com, and Tom Kloza, tkloza@opisnet.com

--Editing by Lisa Street, lstreet@opisnet.com

Copyright, Oil Price Information Service


COVID-19: Asia Jet Fuel Cracks Slump to Multi-Year Lows, Arbitrage Kept Open

March 19, 2020

Asia jet fuel cracks, or refining margins, have crumbled to their lowest levels in more than a decade even as refiners cut runs and tweak product slates in favor of gasoil while traders work to move overseas as many barrels as possible, industry sources said.

The scale of demand destruction triggered by a growing number of airlines that are canceling flights and even grounding entire fleets due to the spreading coronavirus disease (COVID-19) has sent jet fuel values plummeting and traders looking to even store barrels on board tankers despite the possibility of contamination, they said.

"Jet cracks are expected to remain under severe pressure in the second quarter and potentially falling to near zero. Airlines have announced capacity cuts of up of 90% as overseas travel comes to a halt with various restrictions and quarantine measures in place," said Matthew Chew, IHS Markit downstream principal analyst in Singapore.

Refiners will have to cut runs with no disposition outlets as export markets including the U.S. and Europe are also severely impacted as COVID-19 spreads rapidly in the West," he added.

The jet fuel crack has fallen to below $2.00/bbl, according to data from IHS Markit, which industry sources said was the lowest since at least 15 years.

At the same time, surplus cargoes in northeast Asia are sold at hefty discounts in order to force open arbitrage flows to Europe and the U.S. West Coast (USWC), traders said, with some pegging the differentials sinking to as much as minus $2-$2.50/bbl for supplies from China with South Korea barrels at just below this level.

This compares with differentials in the positive territory just a few months ago.

The arbitrage is working, even as freight rates increase, due in part to the wider jet fuel contango in the West and the bigger discounts traders are getting over in Asia, one trader said.

Shipping fixtures this week continue to show a slew of booking to both Europe and USWC. Petroineos chartered the STI Lobelia to pick up 90,000 mt from Yangpu for delivery to Singapore or Europe (UKC) at a cost of $1.3 million and $3.7 million, respectively.

Vitol chartered the Bryanston, also to load 90,000 mt but from South Korea for Europe at $3.5 million. This is the first long-haul April loading cargo booked, fixtures show.

The rates compare with that done for a similar LR1 cargo for loading in December from Yangpu at $2.9 million, a fixture list released on Dec. 3 showed.

On its part, PetroChina booked the MR tanker BW Bobcat to load a 35,000 mt cargo from Dalian on March 26 bound for USWC at a cost of $1.65 million, one fixture list showed.

Unlike in the West where companies have put tankers on short-term time charter to act as floating storage, such moves have yet to be mirrored in Asia.

There is a reluctance to put jet fuel on floaters as it is the most sensitive of all the oil products and has stringent specification requirements, industry sources said, adding that risks to contamination grow when it is kept on ships for months on end unlike crude oil or fuel oil.

However, there is the option for traders to slow steam the tanker and take advantage of the contango.

"The transit from North Asia to UKC is about 35 days and companies may park the vessel somewhere close to the eventual outlet. Naturally you have to ensure that the operations are good to minimize contamination," said one trader.

A fixture list released on Thursday showed that BP and Shell have taken an LR1 each in the West to store 60,000 mt of jet fuel. BP has the Stena Polaris booked for 45-90 days at $25,500 per day, and Shell the Torm Sara for 90-120 days at $35,000 per day, the list showed.

Jet fuel demand in Asia, and even around the globe, is crumbling fast as more and more airlines temporarily cancel flights and even shut up shop at the extreme.

Qantas and its budget carrier Jetstar will stop all international flights from the end of March and temporarily layoff two-third of their 30,000 staff. More than 150 aircraft will be grounded during this period.

Singapore Airlines announced a 50% cut to its scheduled capacity up to the end of April, while others such as Garuda Indonesia and Cathay Pacific have cut capacity by as much as 70% and 77%, respectively.

Jet fuel is buckling under these extreme pressures. Most players agree that a cut in production and severe dumping of the fuel into the gasoil pool, and even floaters if necessary, is needed to bring some stability to the market as the export outlets slowly evaporate, the sources said.

Reference a single daily index for buying and selling jet fuel and gasoil profitably in Asia with the OPIS Asia Jet Fuel & Gasoil Report. Try it free for 21 days

 

--Reporting by Raj Rajendran, Rajendran.Ramasamy@ihsmarkit.com;

--Editing by Sok Peng Chua, SokPeng.Chua@ihsmarkit.com

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COVID-19: Oil Surplus Could Hit Record 1.3 Billion Bbl in 1H 2020: IHS Markit

March 17, 2020

Unprecedented falling global demand due to the coronavirus disease 2019 (COVID-19) combined with Saudi Arabia relinquishing its role as the supplier of last resort is expected to increase global supply surplus to as high as 1.3 billion bbl in the first half of 2020, which would smash the previous record following the 2014-2015 oil price collapse, according to IHS Markit's crude oil research team.

"The world economy will eventually recover and oil demand will stop falling, but now and in the months ahead the scale of the world oil surplus -- the amount of supply above demand -- is of such a massive, unprecedented scale that governments will struggle to manage the damage it will cause to oil and related industries and to a world economy pummeled by COVID-19," IHS Markit said in its monthly global crude oil markets short-term outlook on Monday.

IHS Markit, a provider of critical information, analytics and expertise and the parent company of OPIS, said the report reflects its crude oil team's understanding and assumptions as of March 16, and the team expects to issue new updates reflecting the fast-changing market conditions very soon.

Monthly global oil demand from February through May 2020 will be as much as 4 million to 10 million b/d less than year-earlier levels, which would be the largest declines in oil demand in history, according to IHS Markit.

Immediate and steep production cuts and international collaboration could mitigate the damage. However, it is possible that Saudi Arabia is giving up its role as the balancer, as it is no longer willing to defend oil prices by cutting output only to see others increase theirs, IHS Markit said.

"No one can accurately predict a precise number, but the looming imbalance between demand and supply is so large that it is well beyond any typical margin of error or uncertainty about data," IHS Markit said.

According to IHS Markit, oil supply surplus in 1H 2020 will range from 770 million bbl to 1.3 billion bbl. Even at the low end of its forecast, the surplus is more than double the previous record of 320 million bbl in 1H 2015 after the 2014-2015 oil price collapse. "But even then, global oil demand was still increasing, not falling," IHS Markit said.

U.S. crude oil production by late 2021, hit hard by low oil prices, is expected to be 2 million to 4 million b/d below early 2020 levels, the report said.

IHS Markit's base case forecast projects a March-December 2020 average of $38/bbl for Brent crude futures. Most global oil production has operating costs of $20/bbl in Brent terms, it said.

President Donald Trump's plan to fill up the U.S. Strategic Petroleum Reserve could soak up 79 million bbl, or about 10% of the 1H 2020 global surplus projected in the base case. However, it is not clear what the intervention will be and when it will happen, according to IHS Markit.

"There will be government intervention to address collapsing sectors of the economy, but there is no historical precedent to guide such efforts amid such an enormous decline in demand. Global repercussions of the COVID-19 pandemic will be profound and cause ripples that are not yet visible or imagined," IHS Markit said.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

 

--Reporting by Frank Tang, ftang@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

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COVID-19: Jet Trading at Blending Levels

March 17, 2020

With jet fuel crack spread values at historic lows, aviation fuel is falling into the blending pools, European trading sources said.

Refining margins for jet fuel barges in and around the ports of Rotterdam slumped to historic lows of $2.75/bbl against Brent futures Tuesday, while ultra-low sulfur diesel barge cracks were pegged around $10.50/bbl.

"Diesel seems pretty lucrative at the moment, there is healthy demand. Airports are now closed, so everyone will drive," one source active on the jet market said.

Some airlines, such as Ryanair, have cut their flight schedules for April and May by 80%. Meanwhile, some of the largest economies in Europe -- Spain, France and Germany -- have closed their borders.

Energy forecaster JBC Energy said in its latest note to the market that the restrictions on air travel in and around Europe mean jet fuel demand there is seen declining by at least 70% (1 million b/d) over March-April compared with that of last year.

A source from the diesel market said diesel buyers are looking to fill up storage.

"People have booked caverns, so these are slowly filling up. We are swimming in diesel, but so far not all tanks have been filled," the diesel source said.

Data from consultancy Insights Global last week showed that at 1.922 million tons, gasoil stocks in Europe were 32.6% below five-year-average.

However, travel restrictions are also likely to start weighing on diesel demand. "Europe is already swimming in diesel, and most people will only travel to shops so we'll see the demand drop off soon," the diesel source noted.

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--Reporting by Selene Law, selene.law@opisnet.com;

--Editing by Paddy Gourlay, patrick.gourlay@ihsmarkit.com

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COVID-19: Hearings for Challenges to Canada's Carbon Pricing Program Delayed

March 17, 2020

Hearings originally scheduled for next week to address Saskatchewan and Ontario's legal challenges to Canada's federal carbon backstop pricing program have been tentatively rescheduled to June 2020, according to a statement from the Chief Justice of Canada this week.

The Canadian government last year instituted the output-based pricing system (OBPS) -- a greenhouse gas tax commonly called the "backstop" plan -- on provinces without federally approved carbon pricing programs in place. As of Jan. 1, 2020, the federal fuel charge was in effect in Ontario, New Brunswick, Manitoba, Saskatchewan and Alberta.

"The Supreme Court of Canada is closely monitoring the advice of public health officials with respect to COVID-19 and is working with various stakeholders in the justice system to address the issues arising out of this exceptional situation," the Chief Justice's statement said.

The hearings scheduled on March 24, 25 and 26 for the cases Attorney General of Saskatchewan v. Attorney General of Canada and Attorney General of Ontario v. Attorney General of Canada, along with an unrelated case scheduled for the same days, are being rescheduled "in order to protect participants in the justice system and to reduce the spread of COVID-19," it said.

The delayed hearings are part of the appeals process following appellate court decisions in Saskatchewan and Ontario last year that examined provincial challenges to the federal backstop plan and found it constitutional.

Meanwhile, a separate provincial court of appeals last month found the federal pricing backstop plan unconstitutional in a 4-1 decision based on a similar legal challenge from Alberta. Federal Environment Minister Jonathan Wilkinson said at that time that he looked forward to the constitutionality of the program being ultimately adjudicated by the Supreme Court.

Easily track and manage carbon compliance costs to your business.

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--Reporting by Kylee West, kwest@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

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Analysis: Demand Destruction, Ailing Margins Bring Run Rates into Question

March 16, 2020

The outlook for U.S. refining operations amid the price wreckage of wholesale and futures markets is gloomy amid indications of sizeable, if not massive, declines in demand for transportation fuels as a result of coronavirus disease 2019 (COVID-19) sweeping economic impacts.

Oil market participants were greeted today by U.S. wholesale gasoline prices trading at or below the price of crude oil which results in narrow to nonexistent crack spreads. Take gasoline, for example. At settlement, West Texas Intermediate (WTI) futures were $28.70/bbl and RBOB futures were valued at 68.99cts/gal, or $28.98/bbl. Brent crude futures closed at $30.05/bbl.

Accounting for the cost to process crude oil into fuels (no less than $2.50/bbl) and the current 5-8cts/gal discounts commanded for very prompt gasoline in bulk markets around the U.S. deepens the unprofitability of the fuel.

Ultra-low-sulfur diesel (ULSD) prices continue to hold up better than gasoline (April futures settled at $1.0466/gal) and have lent support to the much-watched WTI 3-2-1 crack spread ($5.27/bbl based on today's settlements), but the unprecedented demand destruction seen for gasoline, jet fuel and diesel has fuel market participants and analysts alike expecting refinery run cuts as inevitable.

No refinery curtailments have been announced but market participants say the potential exists for temporary closures of some smaller plants or small-percentage run cuts across some companies' multi-refinery systems.

Alternatively, refiners who have had major processing units down for planned maintenance are seen likely to extend or deepen that work rather than restart them and run them at a loss. Also possible are deferments of upcoming maintenance, made to stem the outflow of cash on hand.

The RBOB crack spread - which in early March was solid at $17/bbl - "will crash so hard in the next week or two that it can't not impact" gasoline production, Debnil Chowdhury, IHS Markit Executive Director, North American Refining & Marketing, told OPIS.

Smaller, less-complex refineries will have to reduce output (or shut) first and then there will be cuts by the larger refineries, he said, likely for a period of months.

IHS Markit -- the parent company of OPIS - is in the process of modelling refined product demand impacts from COVID-19 and has seen indications that suggest "giant" reductions, Chowdhury said.

The reduction of rush-hour traffic in North America in the wake of widespread workplace, school, commerce and entertainment shutdowns to contain and mitigate the spread of COVID-19 is down 30% to 40% in numerous major metropolitan regions, pointing toward a "massive decline in gasoline demand," he said.

Vehicle miles traveled, the U.S. Department of Transportation's measure of road travel, support that view, with data showing that VMT are off by half if not a little more, Chowdhury added.

VMT data are likely also to reflect some short-term artificial upside for diesel demand, he said, due to goods "distribution centers going crazy resupplying" grocery and big-box stores that are seeing panic-buying and hoarding by consumers worried about quarantine and travel restrictions.

However, when the COVID-19 virus causes more Americans to be bedridden and/or housebound that shopping upside for diesel is likely to peter out. In addition, shipping companies' preference for very-low-sulfur fuel oil (VLSFO) amid decreasing ship movements has hurt demand for diesel, according to Chowdhury.

He also sees a reversal in a distillate market dynamic that was in play just before and after the International Maritime Organization (IMO) low-sulfur fuel rules went into place Jan. 1.

Before COVID-19, the price of "diesel was strong due to IMO 2020, and diesel was pulling jet fuel (prices) up with it," he said. "Now, we think the jet crack gets so bad that it pulls diesel down with it."

Demand for jet fuel - clearly falling after weeks of piecemeal route cancellations - will see additional declines as a result of the Trump administration's halt to Europeans traveling to the U.S., Chowdhury said, of 300,000-350,000 b/d in both the U.S. and in Europe.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

 

--Reporting by Beth Heinsohn, bheinsohn@opisnet.com;

--Editing by Denton Cinquegrana, dcinquegrana@opisnet.com

Copyright, Oil Price Information Service


COVID-19:  European Jet Cargo Differential Crashes to Historical Low

March 16, 2020

European jet cargo differentials versus European distillate futures have sunk to historical lows Monday amid the coronavirus disease 2019 (COVID-19) pandemic in Europe.

Shell sold a 30,000-ton jet cargo to BP at a $12/metric ton discount to April low-sulfur gasoil (LSG) futures on the ICE bourse, according to data from brokers.

The cargo, which is onboard the vessel Abu Dhabi III, will be delivered to the port of Rotterdam between March 30 and April 3.

"I have never seen jet cargo differential this low. There must be a bottom somewhere, but I don't know where it will be," one jet broker told OPIS. Excluding today, jet cargo differentials in northwest Europe have averaged $30.25/ton above front-month low-sulfur gasoil futures since the beginning of the year, according to OPIS data.

Most European airlines cut their flight schedules this weekend, shaving up to 90% of the flights, as European countries are closing their borders in a bid to stop the spread of the COVID-19 coronavirus.

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--Reporting by Selene Law, selene.law@ihsmarkit.com;

--Editing by Paddy Gourlay, patrick.gourlay@ihsmarkit.com

Copyright, Oil Price Information Service

 

West Coast Gasoline Spot Prices Plummet 70cts/gal in Two Weeks

March 13, 2020

Gasoline prices in all three West Coast spot markets have crashed around 70cts/gal since the start of March, and in the past week alone, prices have slashed around 40cts/gal.

Los Angeles and San Francisco CARBOB as well as Pacific Northwest sub-octane spot prices were under $1/gal Friday afternoon.

Plunges in the futures market, which underpins spot prices, have been the motivating factor, dragging prices lower amid demand concerns tied to coronavirus disease 2019 (COVID-19) and an oil price war between Saudi Arabia and Russia.

West Coast spot prices are touching on lows not seen since 2016, which at that time were also futures-led. The oil market staged a relatively quick recovery by April from February low-water marks that year, but recovery from the current depths may be more drawn out, given increased social distancing measures being put into place each day to prevent the spread of COVID-19, in turn dampening demand.

Futures differentials on the West Coast have put up little to no resistance to basis weakness, leaving spot prices at the mercy of steep losses in underlying paper trade.

In California, supply fundamentals aren't doing much to support prices either.

There's a handful of planned and unplanned maintenance underway in both Southern California and the Bay Area, but regional supply fundamentals show healthy inventory levels. Both production and stockpiles of CARB gasoline were up in both weekly and annual comparisons in this week's Fuels Watch Report from the California Energy Commission.

"I think ultimately the West Coast refiners will respond via run cuts and exports to the eventual demand shock that's coming," said one veteran trader.

Pacific Northwest gasoline appeared well-stocked too, placing overall pressure on cash differentials, although day-to-day volatility has been observed as the region continues to move through its spring RVP transition. Sources told OPIS that the arrival of the vessel Gulf Rastaq, laden with a cargo of sub-octane, is likely to exert a bearish impact on futures differentials.

The Gulf Rastaq was in the northern Pacific Ocean Friday, indicating an arrival in Portland on Saturday, according to ship tracking data from Market Intelligence Network (MINT) by IHS Markit.

IHS Markit is the parent company of OPIS.

Distillate prices on the West Coast hit four-year lows as well this week, although losses were closer to 50cts/gal since the beginning of the month, reflective of a bit more resilience in ULSD futures than RBOB overall the past two weeks.

Spot market participants expressed to OPIS that they aren't expecting demand depression, and its impact on fuel prices, to let up anytime soon, noting weakening of cash differentials for non-prompt month April delivered barrels that accelerated on Friday.

"I think everyone is anticipating gasoline demand to crater," said a second veteran trader.

The OPIS West Coast Spot Market Report is the nation's premier price index for refined petroleum products. Get a complete 5-day picture of the Los Angeles, San Francisco and Pacific Northwest refined spot markets plus West Coast crude oil postings, PADD 5 DOE inventory levels, feedstock values and more. Start my 5-day free trial!

--Reporting by Kylee West, kwest@opisnet.com, Bayan Raji, braji@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

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Conditions Resemble 1930s: Former Mexico Energy Official

March 12, 2020

MEXICO CITY - The conditions surrounding the current oil price crash is unique and unprecedented in over 90 years, Mexico's former Deputy Hydrocarbon Secretary Aldo Flores told OPIS.

"We are in a delicate and uncommon situation of a simultaneous demand and supply shock," Flores said. "The last time something like this happened at such an extreme was perhaps in (the 1930s) Great Depression."

Flores said that at the time, global demand for commodities, including oil, tanked, just as production from Texas and Oklahoma boomed, causing a price collapse.

This was when the Texas Railroad Commission stepped in to dictate production quotas, a move that later inspired the creation of OPEC, Flores added.

In comparison, the fallout from the 2008 financial crisis, with a demand drop and excess supply, bears some resemblance, but it was brief as prices went up within a year, he added.

"Today, we are witnessing a conscious effort to increase supply amidst a sharp demand decline," Flores said.

"The price war Russia and Saudi Arabia have is hardly in anyone's best interest," he added.

Low prices will discourage investment in an industry that requires a sustained effort to bring production to the market every year, he said.

Price War Jeopardizes Future Supply Stability

"Today's investment delays might result in insufficient supply when demand picks up again," he added.

A sizable share of the world's current production depends on higher oil prices as it is financed with debt.

"This situation in one hit puts at risk not only unconventional production but also high-cost conventional projects," Flores said.

"Tracking the debt rollover from shale producers will be critical as a good portion of their supply depends on sustained financing, something challenging due to the difficulties the sector has generating returns," Flores said.

There is speculation that the U.S. government will support shale producers as the oil sector has become an important engine of the country's economy in recent years, he added.

It is difficult to know how long the price war will last, but the quick resolution does not appear to be on the horizon.

"If the communication channels remain open, there will be a space for Russia and Saudi Arabia to continue speaking and come to a resolution," Flores said.

However, if both parties remain immovable from their standing regarding an output cut, it will not be very easy for the situation to resolve soon.

"Saudis and Russians appear committed to waiting until someone blinks," he added.

A change in position will not be easy in the immediate term but does not appear impossible, said Flores, who also is the former Secretary General of the International Energy Forum based in Riyadh, Saudi Arabia.

Mexico has been caught in a difficult position by this low-price environment.

"The country needs significant investments to reach the production levels every administration has aspired to since 2004," he added.

Currently, the administration of President Andres Manuel Lopez Obrador has set a goal of producing 2.4 million b/d by 2024, an increase of 600,000 b/d from current output.

Mexico faces the challenge of replacing 70% of its current production, which comes from 24 mature and declining areas such as Ku-Maloob-Zaap that are projected to deplete over the next decade, data from the Mexican government revealed.

Mexico Could Play Mediator Role

The administration could retake the international leadership role Mexico has played in the past to build a constructive dialogue among producers and consumers during difficult times, Flores said.

Mexico played a pivotal role in bringing parties to a resolution during the Venezuela-Saudi Arabia price war in 1998.

Mexican Finance Secretary Arturo Herrero said Tuesday that is willing to help mediate on the situation between Russia and Saudi Arabia without giving further details.

"We, along with some other countries, are looking to be a type of third party to build bridges," Herrera said at a press conference.

Energy Secretary Rocio Nahle said Wednesday that Mexico is willing to adjust a share of its output to avoid a crude overproduction, adding that Mexico remains in permanent communication with OPEC members.

Over recent years, the relationship between Saudi Arabia and Russia was constructive but a challenging one from the point of view of their different energy policies and industry models.

"Russia doesn't have a national oil company but a more hybrid oil sector.

Declaring oil output cuts can be difficult in this situation," Flores said.

"For Saudi Arabia, it is also difficult being OPEC's only swing producer and requiring the cooperation of other members."

"Sustaining cooperation under these two limitations was already difficult under any scenario (for both nations)," said Flores, who participated in the OPEC+ meetings in 2016.

Bleak Future for Refined Products

The panorama for refined products seems weak. In 2018, the International Energy Agency projected a start-up of 7 million b/d of new capacity by 2022-2023; meanwhile, demand would increase of 5 million b/d, Flores said.

The COVID-19 coronavirus pandemic will hurt demand growth, he added. All international and government agencies have cut their oil demand growth forecasts.

The U.S. Energy Information Administration has slashed its global oil demand growth to just 370,000 b/d rather than 1.3 million b/d up from 2019 levels.

OPEC and the IEA expect close to no increase in demand for 2020.

"If all the capacity expected to come online materializes, there will be excess supply and thinner margins. Refining companies will have to be very disciplined in their operations," Flores said.

OPIS RESOURCES FOR MEXICO’S FUEL MARKETS

Fuel price transparency, news & training to help you successfully navigate Mexico's changing fuel markets. Get more information here

 

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com;

--Editing by Justin Schneewind, jschneewind@opisnet.com

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Asian Petchem Makers May Cut LPG Cracking

March 12, 2020

Asian petrochemical producers may consume less liquefied petroleum gas (LPG) than originally planned in the coming months as cracking economics shift in favor towards naphtha, market sources said .

Crude prices plummeted by over 30% on Monday to their low-$30s/bbl, a level last seen four years ago following a breakdown in talks between OPEC and key ally Russia on output cuts.

The CFR Japan naphtha price shed 23.7% on the same day to $311.500/mt, far outpacing the 15% fall in the CFR Japan propane price at $327.50/mt. The prices are their lowest since Feb. 24, 2016 and Sept. 16, 2016 respectively.

"Naphtha prices are so depressed now because of the low crude oil prices so there will be more naphtha cracking," said Matthew Chew, principal researcher at IHS Markit in Singapore.

Asian crackers had indicated they preferred to use LPG over naphtha prior to the crude price collapse on Monday. According to the monthly IHS Markit OPIS cracking survey completed on March 6, 17 companies across Asia had planned to crack 561,000 mt of LPG in April, up 6.9% from March.

But with LPG prices now higher than propane, Asian crackers are mulling changes to their feedstock slates.

"Naphtha looks more economical than LPG right now as the propane/naphtha ratio is high," said a senior feedstock procurement official at a Northeast Asian petrochemical company that had participated in the cracking survey.

IHS Markit OPIS calculates the propane/naphtha ratio by comparing the second physical trading cycle for CFR Japan propane against the first trading cycle for CFR Japan naphtha.

Petrochemical producers typically find it more attractive to crack LPG instead of naphtha when the ratio dips below 0.90. The ratio surged to 1.039 on Monday, the highest since Oct. 30 2017, IHS Markit OPIS data showed.

Refining crude oil produces both naphtha and LPG. But Asian propane prices found some recent support from propane dehydrogenation plant (PDH) operators in China, where the coronavirus disease 2019 (COVID-19) outbreak appeared to be easing after having ground the country's economic activity to a near standstill.

PDH plants use propane exclusively as feedstock.

Cracker operators meanwhile have been cutting run rates in face of weak downstream demand. Taiwanese private sector refiner Formosa Petrochemical Corp (FPCC) reduced the average run rates of its three naphtha crackers in Mailiao to around 90% from March, down from around 99% to 100% in January and February respectively, a company official said.

South Korea's LG Chem reduced run rates at its crackers in Daesan and Yeosu from March 1, while YNCC is planning to cut the run rate for its No.2 cracker in Yeosu for 2-3 weeks, according to IHS Markit's Asia Light Olefins Weekly published on March 6. Fellow South Korean petrochemical producer shut a 1.1 million mt/year cracker after an explosion on March 4.

Japan's Maruzen Petrochemical and Keiyo Ethylene were due to cut run rates in March, while Mitsui Chemicals reduced run rates in late February, according to industry sources.

"The probability of downside risk for petrochemical products, which already have been impacted by COVID-19, has increased further after the plunge in oil prices," IHS Markit said in a report on March 10.

The Caixin headline manufacturing PMI for mainland China, compiled by HIS Markit, dropped from 51.1 in January to 40.3 in February, the sharpest deterioration since the survey started almost 16 years ago, Bernard Aw, principal economist for IHS Markit said in a PMI commentary on March 2.

Methodology: IHS Markit OPIS collects Asian petrochemical companies' plans for the current month and the next month, as well as actual cracking volume in the previous month. IHS Markit OPIS checks if any manufacturers revise their plans for the current month and if any manufacturers crack more or less than initial plans in the previous month. IHS Markit OPIS contacts feedstock procurement officers of each companies for the survey by phone, email or messengers in the last week of previous month or the first week of the current month.

Gain greater transparency into Asia-Pacific markets for more strategic buy and sell decisions on refinery feedstocks, LPG and gasoline with the OPIS Asia Naphtha & LPG Report. Get your free trial here

 

--Reporting by Jongwoo Cheon Jongwoo.Cheon@ihsmarkit.com, Masayuki Kitano Masayuki.Kitano@ihsmarkit.com, Lujia Wang Lujia.Wang@ihsmarkit.com,

--Editing by Hanwei Wu, Hanwei.Wu@ihsmarkit.com

Copyright, Oil Price Information Service

 



OPEC Slashes Global Oil Demand Forecast

March 11, 2020

OPEC's monthly report has joined other analyses in slashing its forecast for global oil demand and warns that Russia's economy will take a big hit if crude prices do not bounce back.

OPEC's March report lops off 1 million b/d in global demand from last month's 100.73-million-b/d forecast.

"Total global oil demand is now assumed at 99.73 million b/d in 2020," said OPEC.  "Considering the latest developments, downward risks currently outweigh any positive indicators and suggest further likely downward revisions in oil demand growth," it said, referring to the spread of the coronavirus disease 2019 (COVID-19).

OPEC's February report had already revised down its forecast for total demand growth in 2020 by 230,000 b/d because of the virus outbreak. That forecast represented global oil demand growth of 0.99 million b/d.

The March report also downgrades the demand call on OPEC supply in 2020 by 1.1 million b/d.

"Demand for OPEC crude in 2019 stood at 29.9 million b/d, 1.2 million b/d lower than the 2018 level. Demand for OPEC crude in 2020 is expected at 28.2 million b/d, around 1.7 million b/d lower than the 2019 level," the March report states. Quoting secondary sources, the report said that OPEC production "dropped by 546,000-b/d month-on-month to average 27.77 million b/d" in February.

Output dropped partly because of blockades to supply out of Libyan ports by a local commander opposed to the current government. Saudi production in February was also down month-on-month by 56,000-b/d to 9.68 million b/d.

The report barely refers to the Monday's dramatic falls in crude prices and the apparent end of OPEC's three-year pact with Russia to guide crude prices.

However, the report's forecast for Russian economic growth made clear the potential damage of a crude price war.

"Russia's current national reserves, and relatively low inflation levels as well as lower dependency on imports, may help mitigate some of the effects implicated by lower oil prices," said the OPEC report.

"However, ongoing declining oil prices may negatively and directly affect per capita real income. The government might be forced to postpone the large investments it has been planning for the massive national projects requested by the government. It is estimated that a continued decline in crude oil prices may lead to a drop in Russia's economic growth of as much as 0.5 percentage points in 2020," it concluded.

The report leaves OPEC's forecast for Russian crude output in 2020 virtually unchanged on its February prediction at 11.52 million b/d, up from 11.44 million b/d in 2019.

Russia threatened this week to increase output by 500,000 b/d from current levels to 11.8 million b/d in response to Saudi Aramco pledging to boost its production to 12.3 million b/d.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

 

--Reporting by Anthony Lane, alane@opisnet.com;

--Editing by Paddy Gourlay, pgourlay@opisnet.com

Copyright, Oil Price Information Service


 

Bahri swoops up VLCCs ahead of Saudi Arabia's output hike

March 11, 2020

Saudi Arabia's national shipping carrier Bahri has placed at least 15 and up to 30 very large crude carriers (VLCCS) on subjects to ship crude oil with loading from as early as Mar. 20, shipbrokers said.

At least seven of these tankers are currently expected to head to either the US Gulf or east Asia. The Dalian, Agios Fanouris I, Hong Kong Spirit, DHT Panther, Maran Thaleia, Maran Canopus and the Maran Arcturus are currently being booked to load crude from Saudi Arabia during Mar 20 to Mar 31 at rates of between WS42.5 to WS57.5 to head to the US Gulf.

Bahri also placed options on the Maran Thaleia, Maran Canopus and the DHT Panther to head to east Asia at around WS85.

Another three VLCCs, the Front Kathrine, the Boston and the Agios Sotis I, are booked to move crude from Ras Tanura to the Red Sea. Bahri placed another five VLCCs--- the Newton, Dlama, Asia Dawn, Hojo and Alsace--  on subjects for cost of affreightment (COA) assignments from March 20.

Fixtures for tankers placed on subjects might still be cancelled subsequently.

But it is still unusual for Bahri to place so many tankers on subjects within such a short space of time, shipbrokers said.

This is likely related to Saudi Arabia's plan to raise crude output to 12.3 million b/d in April, an increase of more than 25% from February, market sources said. Buyers in Asia and the US Gulf are expected to be among the main recipients of this increase in crude output.

Bahri's unexpected booking spree drove VLCC freight rates sharply higher, shipbrokers said. According to the Baltic Exchange, the freight rate for the Middle East to US Gulf route rose by 18.96 points from the previous day to

WS52.41 on March 10. The freight rate for the Middle East to Singapore route rose by 22.42 points to WS78.42 while that for the Middle East to China route rose by 21.84 points to WS78.42.

All three rates are at their highest in more than a month.

The slew of fixtures portends an increase in crude oil flows from the Middle East to Asia. But it is unclear exactly how Asian refiners are going to absorb this inflow and for how long.

"The reduction of Aramco prices for April loading is definitely a great opportunity for the refiners to boost their margins but it could be short-lived, " said IHS Markit executive director Premasish Das.

With global demand for refined products expected to decline this year, refiners would not be able to process more crude if there is no demand support.

"Refiners will maximize their crude purchase at a discounted price, subject to their storage capacities, and process more crude oil before market fundamentals counter it," Das added.

Amid the weak demand outlook, several trading firms and majors in Asia have also been seeking VLCCs to use as floating storage, as reported by OPIS earlier.

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--Reporting by OPIS Asia team

--Editing by Hanwei Wu, Hanwei.wu@ihsmarkit.com

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Pemex Posted Racks Fall 4.23%; Retail Prices Flat in Mexico

March 10, 2020

MEXICO CITY -- Pemex cut its regular gasoline 87 rack posted prices by peso 0.75/liter (4.23%) nationwide to peso 17.15/liter on Tuesday.

Pemex's rack posting on Tuesday for regular gasoline at the 18 de Marzo terminal in Mexico City was peso 17.48/liter, down 3.6% from peso 18.13/liter the previous day.

The cut in Pemex's posted rack prices follows the historic crude oil price crash reported yesterday, when May Brent fell to $34.36/bbl and April WTI settled at $31.13/bbl, down $10.15/bbl for the day.

OPIS on Monday assessed the spot price of regular gasoline landed in East Coast Mexico from the U.S. Gulf Coast at peso 5.586/liter, a drop of peso 1.43/liter, or 20.3% less compared with Friday.

According to OPIS Mexico Racks, the average retail price for regular gasoline nationwide across the country was peso 19.450/liter, unchanged from the prices reported yesterday.

Mexico's retail prices have been slow to pass savings from the drop experienced in the international market to end consumers. Regular gasoline prices have fallen only peso 0.5/liter since Feb. 2, when Mexico stopped subsidizing fuel prices.

Including the entire 4.95 IEPS tax, plus the CO2 tax, freight and VAT, east coast Mexico spot landed regular gasoline prices have fallen close to peso 2.2/liter from Feb. 2 to peso 12.37/liter on Monday.

OPIS Mexico Racks
As price liberalization expands in Mexico, rely on OPIS for daily implied wholesale prices at terminals across the country. Sign up for your 1 month free trial here.

 

--Reporting by Daniel Rodriguez, drodriguez@opisnet.com;

--Editing by Barbara Chuck, bchuck@opisnet.com

Copyright, Oil Price Information Service


Shippers Say Buy Fuel Now, Hope Rates Turn Around

March 10, 2020

Monday's plummet of marine bunker fuel prices was met with cautious optimism Tuesday, noting cheaper fuel is welcome, but shippers might also need a freight rate bump to cash in on inexpensive fuel.

One of the main issues when [bunker] prices fall, freight rates go down with them," said one buyer from an American shipping company. "Now if you can load your tanks, and the market turns around and rates go up, you are in a good position."

On Monday, OPIS assessed 0.5%S (very-low-sulfur fuel oil) FOB Houston $70 per metric ton lower to $315 per metric ton ex-wharf, down by 18.2%. At the same time, bulk VLSFO was assessed $74.86/mt ($11.17/bbl) lower to $287.25/mt ($42.86/bbl), a decrease of 20.7%. May Brent crude on Monday fell $10.91/bbl to $34.36/bbl, a drop of 24.1%.

VLSFO averaged $566.57/mt in January and $470.63/mt in February, according to OPIS data. VLSFO for March was currently averaging at $404.42/mt over the course of six assessment days.

Another bunker buyer added: "You can rightly speculate we are at a [bunker price] bottom right now, so it would make sense to jump in and buy what you can, where you can buy it ... otherwise, you wait to buy and the fuel is gone. Why wait to buy?"

The current market situation is a result of several moving parts that includes a global demand slowdown resultant of the forceful punch of the coronavirus disease (COVID-19) that was followed by the failure of OPEC+ to agree on production cuts and Saudi Arabia possibly ramping up production to perhaps as much as 12 million b/d from slightly less than 10 million b/d. Crude values crashed and the products markets followed, hence low-priced bunker fuel.

MONITOR KEY BUNKER FUEL PRICES AND RELATED GLOBAL SHIPPING MARKETS.

OPIS Global Marine Fuels Report delivers daily assessments of marine bulk and bunker fuel prices in key global ports, including calculated prices for the new 0.5% VLSFO, a new fuel created in anticipation for IMO 2020. Easily track cargo and bulk fuel prices for Asia, Mideast, Europe and the Americas with this concise report filled with at-a-glance tables and charts. Start Your Free 30-Day Trial

 

--Reporting by Tom Sosnowski, thomas.sosnowski@ihsmarkit.com;

--Editing by Eric Wieser, eric.wieser@ihsmarkit.com

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American Mogas on Sale Across Broad Portions of the Country

March 10, 2020

2020 arrived with nearly all markets across the country finding rack gasoline above $1.50/gal and in some West Coast markets, above $2/gal. However, thanks to yesterday's unprecedented drops in spot markets, and perhaps due to pessimism among refiners looking to sell their gasoline production, OPIS has confirmed dozens of rack prices for E10 today at less than $1/gal.

The cheap prices are in many cases the result of aggressive discounts off OPIS Low postings, but there are an equal amount of areas where refiners have simply cut prices in order to clear inventory.

Moving from west to east, the first distressed market one comes across is Denver, which has occasionally found the cheapest wholesale availability since February. E10 was available at the Denver unbranded rack today for just 93.50cts/gal thanks to a 5.69ct/gal discount to the OPIS Low. Other Colorado locations were prone to price weakness with sales prices in the $1.03/gal range.

A cluster of very cheap gasoline prices was apparent in states that included Illinois, Indiana, Ohio and Michigan. Indianapolis, Ind., E10 was available today for just 93.3cts/gal and Huntington, Ind., had the same number with Hammond about 0.3cts/gal higher. In Illinois, OPIS confirmed E10 availability for less than $1/gallon in Decatur, Heyworth, Robinson and Rockford.

Michigan was likewise compromised by the cheapest wholesale gasoline since 2016 with Detroit, Ferrysburg, Jackson, Marshall, Muskegon and Niles in the 90s.

Ohio refiners had similar challenges with E10 breaking below the $1/gallon mark in Cleveland, Columbus, Dayton, Lorain and Toledo.

St. Louis area marketers could lift gasoline in Wood River for just 95.5cts/gal thanks to a 13.9cts/gal discount off OPIS Low and Jefferson City in that state saw a net 97.75ct/gal price thanks to a discount of 12.25cts/gal.

Also joining the sub-$1/gallon parade were points in Oklahoma, Wisconsin and Wyoming.

In almost all cases, the aggressive rack prices are well below what spot replacement costs for CBOB and ethanol indicated, even when RINs were taken into account. The low-ball prices suggest that interior refiners are struggling to get rid of March gasoline output, regardless of machinations in the world's bulk markets.

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***Monitor rack price changes as they happen, on the web and on your phone.*** Learn more about OPIS Real-Time Racks

 

--Reporting by Tom Kloza, tkloza@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

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Retailers Seeing Some of Highest Margins on Record Tuesday

March 10, 2020

Monday's historic slide in energy prices is resulting in historically high rack-to-retail gasoline margins in the United States, with today's level being the fourth-best margin on record.

The national average margin for regular unleaded is 57.4cts/gal, according to OPIS MarginPro data. That figure was only topped at the start of the financial crisis in 2008, when daily margins hit an all-time high of 59.3cts/gal on Oct. 6, hit 58.7cts/gal on Oct. 10 and came in at 57.6cts/gal on Oct. 7, the MarginPro data shows.

Tuesday saw a 16.4ct/gal spike in margins as crude oil prices sank by more than $10/bbl and prices for April RBOB fell 25.21cts/gal, pulling gasoline prices similarly lower in spot markets around the nation.

Margins are up 31.7cts/gal from a month ago and are 43.9cts/gal higher than where they were at this time in 2019, according to MarginPro.

A look across the country shows average margins topping 70cts/gal in 11 states, with the high coming in Oregon, with margins reaching a nosebleed level of 80.8cts/gal and in the Northeast the cluster of Vermont, Massachusetts Connecticut and New Hampshire seeing margins range from 76cts/gal to 71.2cts/gal.

An indication of the strength of margins is that only two states are seeing average levels below 40cts/gal, with Utah margins at the lowest in the nation at 17.4cts/gal and Idaho seeing an average of 26.3cts/gal. The South, where margins are normally low compared to the rest of the nation, is seeing margins average between 43.4cts/gal in Florida to $61.3cts/gal in West Virginia.

The spike in margins comes as retailers are already seeing record-breaking levels for the start of the year. Year-to-date margins are 27.5cts/gal as of Tuesday. That's 27% better than last year, which was the previous best for the Jan. 1 to March 10 period.

Even as energy prices appear like they will remain low through the year, retailers have reason for optimism. Margins, generally, perform better in the second half of the year, with first-half margins besting second-half levels only once going back to 2007. The high margins at the start of 2020 could usher in a period of strong profits for retailers.

OPIS RetailSuite

Manage every aspect of your retail fuel business with OPISRetailSuite’s web-based solutions that cover every aspect of your fuel business from real-time competitor pricing and alerts, to market data that includes margins, market share, and weekly volume trends. Learn more about RetailSuite

 

--Reporting by Steve Cronin, scronin@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

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US DOE Suspends Crude Oil Sale from Strategic Reserve

March 10, 2020

The U.S. Department of Energy (DOE) has called off a non-emergency sale of crude oil from the country's Strategic Petroleum Reserve (SPR), according to the DOE's Office of Fossil Energy which oversees all actions for the stockpile.

"Given current oil markets, this is not the optimal time for the sale, DOE spokesperson Jess Szymanski said in a statement, referencing "recent fluctuations in global oil markets." DOE will provide updated information "as market conditions change."

Petroleum futures trading on Monday took U.S. benchmark West Texas Intermediate on NYMEX down to $31.31/bbl, off by $10.15/bbl which was the largest one-day drop for the contract since Operation Desert Storm in 1991. Compared to where WTI began 2020 ($61.18/bbl), the crude's price has fallen by about 49%.

The sale of up to 12 million barrels from three sites in Texas and Louisiana was part of a three-year program to fund modernization of the SPR.

Announced on Feb. 28, the latest sale notice called for bids to be submitted by 2 p.m. ET today. Awards were to have been made no later than March 20 for deliveries to be made in April and May.

SPR crude was to have been sourced as follows: up to 6 million bbl from Bryan Mound, Texas; up to 3 million bbl from Big Hill, Texas; and up to 3 million bbl from West Hackberry, La.

The fourth location of the reserve is in Bayou Choctaw, La. As a whole, the U.S. SPR currently holds 634.967 million bbl of crude oil.

DOE was authorized to draw down and sell up to $2 billion worth of SPR crude oil for fiscal years (FY) 2017 through 2020 to fund modernization of the reserve. In addition, FY 2019 appropriations enacted on Oct. 1, 2018 allowed DOE to sell up to $300 million worth of SPR crude to carry out the SPR Life Extension Phase II project. Proceeds from that sale were deposited into DOE's Energy Security and Infrastructure Modernization Fund in FY 2019. A total of 4.2 million bbl was sold in the sale and delivered in April and May 2019.

Meanwhile, the U.S. has made a deal to give Australia access to the SPR in case of emergency.

As reported on March 9, Australia's Energy Minister Angus Taylor said he would be travelling to the United States this week to sign the agreement, which "will enhance Australia's resilience to international fuel disruptions by increasing our oil stockholdings."

The agreement solves both a political and supply problem for Australia, where the country's strategic reserves fall below levels required by the International Energy Agency (IEA). Australia, which imports 90% of its liquid fuels, has enough oil in storage to last 54 days, according to local reports.

That's far below the 90 days called for by the IEA.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

 

--Reporting by Beth Heinsohn, bheinsohn@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

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Oil Suppliers Make Sweeping Reductions to Wholesale Racks

March 9, 2020

Data compiled by Oil Price Information Service (OPIS) indicates that U.S. suppliers have reacted quickly to the change in global oil market prices and have made sizable reductions in wholesale rack prices. The changes average more than 11cts/gal countrywide and include diesel, gasoline, propane and biodiesel among the finished products impacted.

Every U.S. state has witnessed price changes that started this morning and have extended into the afternoon as suppliers reckon with a drop in crude prices over the weekend that amounted to some 30%, shoving West Texas crude into the low $30s and the mid-$30s for Brent.

Massachusetts and Nevada sported some of the biggest declines, which have averaged more than 16cts/gal combining all products. Some of the smaller increases amounted to half that in such states as Minnesota and Wisconsin.

Gasoline racks have declined more than any other product, with an average drop of 12cts/gal, followed by diesel at 10.41cts/gal, biodiesel at 9.82cgts/gal and propane at 4cts/gal.

It was largely the independent refiners and independent wholesalers who move over-the-rack barrels who punched prices lower.

Among the big refiners, Valero sliced prices an average of 16cts/gal through a large swath of its marketing sector. BP trimmed prices 10.36cts/gal across a smaller area, while Flint Hills cut prices an average of 12.4cts/gal across its markets, including the Southeast.

OPIS Real-Time Racks
***Monitor rack price changes as they happen, on the web and on your phone.*** Learn more about OPIS Real-Time Racks

--Reporting by Ben Brockwell, bbrockwell@opisnet.com;

--Editing by Barbara Chuck, bchuck@opisnet.com

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Banks Downbeat About Price War; Price Targets Show Variance

March 9, 2020

Oil analysts at major investment banks are scrambling to provide guidance for their clients today, and they are generally slicing 2020 price projections for Brent and/or WTI by double digits. Admittedly, most Wall Street analysts were prepared to react to the twin ills of coronavirus disease 2019 (COVID-19) and an inadequate OPEC+ outcome, but they did not anticipate a new calculus where there is a production/price war between Saudi Arabia and Russia.

Here's a very quick rundown of some of the considerations and conclusions reached by bank analysts in the last 24-48 hours:

--Bank of America Merrill Lynch: This bank was among the least bearish investment houses ahead of Friday's OPEC+ debacle, and they cling to some ambitious numbers.In a report called, "It Takes Two to Supercontango," bank analysts admitted that Brent oil prices might "temporarily dip into the $20s over the coming weeks," but they implemented modest cuts for target levels. BofA reduced average Brent prices for 2020 by just $9/bbl to $45/bbl and predicted a $41/bbl average for WTI, reflecting an $8/bbl downgrade.Analysts acknowledged that the Saudis no longer would pursue efforts to rebalance the oil markets and acknowledged that supply/demand projections suggest a major oil market surplus in 2020.The bank hints that the Saudis cannot survive cheap oil forever, and that suspicion might be behind the modest downgrade of 2021 Brent prices. Analysts now see Brent averaging $55/bbl next year, even though that reflects a huge increase from numbers on the forward curve. Analysts have downgraded the base case for demand in 2020 to see growth of just 250,000 b/d year on year, with a notable contraction in the first half of 2020. Longer term, the bank believes that "Brent is a $50-$70 bbl commodity" due to global oil production cost dynamics.

--BNP Paribas: The French bank had expected Saudi Arabia to revisit prices in light of the demand destruction from COVID-19, but the Saudi response via huge cuts to official selling prices (OSPs) was more than markets anticipatedComparisons were made to 2014, the last time OPEC could not reach a production agreement and prices fell sharply as a result."The drop in Saudi OSPs may be part of a 'game of chicken'," the bank said. "If neither side blinks and no compromise emerges, then we think oil prices might move lower in current economic context."BNP Paribas analysts point out that the emergence of a wide contango could limit the damage to spot prices as discounted barrels are put into storage to sell later at a higher price.

--Citi: "Brent crude oil looks like it will fall below $30 sooner rather than later, with no clear end in sight for a new price range," bank analysts told clients overnight. The low reached in the wee hours of the New York morning was $31.02 bbl.Citi declared that the crisis is "unprecedented," observing that even the 1973 Arab oil embargo did not hit supply AND demand. Saudi Arabia's decision to discount prices deeply and to increase output is aimed largely at Russia rather than the U.S., but collateral damage to shale will occur. Saudi Arabia could add 1 million b/d immediately but seems inclined to add about 400,000 b/d to March loadings. The Saudis may be motivated to bring Moscow back to the negotiating table to revisit a producer strategy.Global inventories will build significantly no matter what OPEC+ decides and should weigh heavily on prices into 2021. Citi sees demand dropping by 1.37 million b/d in 1H 2020 and projects an annualized inventory surge of 520 million bbl, a massive build under any circumstance. The bank believes that a massive adjustment is coming for global E&P companies and also warns that financial flows could exacerbate the pricing pain. A return of Libyan oil could push Brent well below $30/bbl, the bank adds.

--Credit Suisse: The bank observed this morning that Saudi Arabia has declared an all-out price war. Like some other analytical houses, the bank notes that the Saudis could quickly increase output to 10 million b/d with the possibility of eventually hitting 12 million b/d.The scale of this oversupply -- coupled with the delay between rig reduction and actual production impacts -- could force oil prices toward cash costs of high-end producers (the low $20s) and rebalance markets over the near term.Credit Suisse had been looking for 530,000-610,000 b/d of U.S. shale growth in 4Q20 and 2021, but now sees perhaps 200,000 b/d to 300,000 b/d of year-on-year growth. The bank observes that the downturn will be much uglier than the 2014-2016 decline among U.S. producers.

Capital is tighter and the big efficiency gains are in the rear-view mirror.

--Goldman Sachs: The investment house has multiple possible scenarios. However, top commodities strategist Damien Courvalin told clients that this was the equivalent of the 1Q 2009 demand shock coming with a 2016-like OPEC production surge. Goldman Sachs cut 2Q and 3Q Brent forecasts to $30/bbl and suggested that possible dips could go near wellhead cash costs close to $20/bbl. The events of last Friday bring back the "New Oil Order" where low-cost producers increase supply from spare capacity and force higher cost producers to reduce output.

--HSBC: The international bank drastically reduced its forecasts for Brent and WTI, dropping the benchmark targets to $49/bbl and $44.80/bbl, respectively.

Again, that is sharply higher than what Monday morning markets are reflecting.The greatest price damage is forecast for the second quarter with Brent projected at $42/bbl and WTI at $38/bbl. Those numbers are $18/bbl lower than the bank's previous outlook.Zero demand growth is now forecast for 2020, with a contraction of 1.3% in the first half of 2020 thanks to the coronavirus.

A recovery in demand is still expected in 2H 2020. HSBC expects U.S. production growth to narrow to about 300,000 b/d in 2020 and ultimately decline by 500,000 b/d in 2021.

--Morgan Stanley: Analysts there believe oil is sharply oversupplied and predicted that Brent needs to fall to $35/bbl in the second quarter and $40-$45/bbl in the second half of 2020. Given that markets have already visited levels below these numbers, a revised report may be forthcoming shortly.Morgan lowered expectations for Brent to $35/bbl in 2Q20 but sees quarterly rises to $40/bbl; $45/bbl; and $50/bbl for the next three quarters. The revised targets still reflect drops of $10/bbl (4Q) to $22.50/bbl (2Q) and new sequential targets for WTI are now $30/bbl to $45/bbl over the rest of 2020.The investment house also hearkens back to the 2014 OPEC meeting for perspective. OPEC output rose 1.5 million b/d over the subsequent 12 months. WTI needs to fall below the average wellhead break-even level (about $40/bbl), and that would ostensibly spark a drop of 200,000 b/d in U.S. output between the exit of 2019 and December 2020. Before the weekend, the bank had been anticipating 400,000 b/d of growth.Morgan Stanley believes that the global oil market will deal with an oversupply of about 800,000 b/d in 2020.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Tom Kloza, tkloza@opisnet.com, Denton Cinquegrana, dcinquegrana@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

Copyright, Oil Price Information Service


LPG Prices Bounce Off Lows, but Challenges Loom Large

March 9, 2020

Spot prices for propane and butane in the Mont Belvieu and Conway trading hubs heading into the afternoon have rebounded off historic lows recorded this morning, but concerns remain high for longer-term prospects amid the upheaval in global markets.

Despite the recovery, Mont Belvieu non-TET (Enterprise) normal butane was on track to end the day with its lowest average price in more than 18 years, according to OPIS TimeSeries data. By 12:30 p.m. CDT, the price had posted an intraday high of 39.875cts/gal from an early low of 34.5cts/gal, for an implied midpoint of 37.1875cts/gal.

The last time similar levels were seen was in Jan. 2002, with a midpoint of 32.875cts/gal recorded on Jan. 14 during a month when the daily average price ranged consistently in the low- to mid-30cts/gal.

The propane market had also flirted with multi-decade lows early on, but the midday rebound pared that record back to just a handful of years.

Mont Belvieu non-TET propane anys recovered to 33.375cts/gal from a morning low of 29cts/gal for an implied full-day mean of 31.1875cts/gal, while TET (Energy Transfer) propane moved up to 32cts/gal from 27.75cts/gal at the start of the session for an average of 29.875cts/gal. Conway propane was up to 30.5cts/gal after recording a 26cts/gal low for an average of 28.25cts/gal.

All three average prices were last seen at similar levels back in Jan. 2016, according to OPIS TimeSeries data.

Despite the rebound, the day's average price for TET propane as of 12:30 p.m. CDT remained 17.3% adrift of Friday's close. Non-TET propane was down 15.42% while normal butane was tracking 20.35% lower.

Downstream at U.S. racks, wholesale propane prices took a hit, falling 1.75-3.00cts/gal at a number of propane terminals, while a few of the Midwest racks saw price drops of 5.00-5.25cts/gal.

"Obviously, if the price of crude continues to descend, we know propane is going to trend lower," said a market watcher, though he added that the selloff appeared to be overdone.

The winter propane season is winding down in the Midwest, where the season has been fairly mild. "I'm going to guess a lot of people will get their last fill up in a week or two," said the source of residential propane heating customers.

Mild winter aside, Midwest marketers have enjoyed steady propane margins ranging from 30-50cts/gal in most areas. Parts of Colorado have seen margins ramp up as high as 80-90cts/gal.

Today's price moves in stateside LPG came in reaction to a one-two punch inflicted upon crude oil markets on Friday and Saturday. Russia set the ball rolling by discontinuing a three-plus year production cut agreement with OPEC.

Saudi Arabia responded a day later by announcing that it would ramp up its own crude oil production, suggesting that output going forward would top 10 million b/d and reach as high as 12 million b/d, and simultaneously slashed the official sales price by $6-$8/bbl.

The resulting collapse in crude oil has exacerbated challenges facing an already over-supplied LPG market.

The end of winter is expected to trigger the traditional decline in LPG prices regardless of external factors. But this year, the situation was top-heavy even before the weekend. The situation is particularly grim in PADD3 (Gulf Coast), the main exporting region.

Propane-propylene inventories in PADD3 as of Feb. 28 stood at 50.9 million bbl according to the Energy Information Administration (EIA), 45.4% higher than the 35 million bbl seen in storage for the corresponding week in 2019.

New fractionation capacity to the tune of 1.4 million b/d would be added in PADD3 by the middle of 2021, and this is projected to push a corresponding increase of LPG into the supply pool.

With domestic demand for LPG expected to remain flat, exports are the main avenue for America to reduce its supply overhang. However, waterfront infrastructure constraints mean that all of the burgeoning surplus cannot be siphoned off.

Weekend events add a new dimension to these well-reported challenges.

Observations from NGL market watchers this morning highlighted the following major themes:

--Increased Saudi Arabian crude oil production implies increased LPG production. These barrels are expected to vie for market share with burgeoning U.S. supplies. Yanyu He, IHS Markit executive director for NGLs, said that as a rule of thumb, 1.8 million mt of LPG production a year is associated with 1 million b/d in crude oil production. Hence, if Saudi Arabian production were to ramp up to its capacity of 12 million b/d from its recent pre-weekend level of around 9.7 million b/d, this could imply an annualized increase of some 4 million mt in the total global LPG supply.

--This comes when global demand could be compromised for a prolonged period on concerns about coronavirus disease 2019 (COVID-19). As one commentator put it:

"The normal wisdom that 'the cure for low prices is low prices' may not hold true this time. Low U.S. prices would not automatically imply more overseas demand, because this is a global price phenomenon." Narrowing propane export margins from the Gulf Coast to Asia through last month despite falling freight corroborate this fact.

--Petrochemical companies in Japan and South Korea have scaled back their naphtha crackers amid COVID-19 concerns. This has caused a potential market for U.S. propane to dry up.

--Lower crude oil prices could lead to lower crude oil production stateside only gradually. During the 2014-2015 price fall, the full reduction in shale production filtered through only after about a year, one expert recalled. By this yardstick, the brakes might not be applied on crude oil production immediately; so low NGL prices might not immediately inhibit the associated supply of NGLs either.

Reported Chinese interest in importing U.S. LPG again could be a potential bright spot. But it may take several months for these flows to materially develop, and this would remain subject to how COVID-19 plays out.

"The picture for LPG prices stateside was bearish before last weekend, and it is even more bearish now," one expert remarked.

This may imply a prolonged U-shaped recovery in LPG prices instead of a quick V-shaped one, he suggested.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

--Reporting by Rajesh Joshi, rjoshi@opisnet.com, Jessica Marron, jmarron@opisnet.com, Mary Welge, mwelge@opisnet.com;

--Editing by Michael Kelly, michael.kelly3@ihsmarkit.com

Copyright, Oil Price Information Service



Crude Dump Outpaces Slide in Asian Product Prices

March 9, 2020

Oil product prices in Asia plummeted on Monday following a breakdown in talks between OPEC and key ally Russia on output cuts, but price falls have so far lagged the sharp losses seen in the crude markets.

May ICE Brent futures were at $33.90/bbl as of 9:55 am Singapore time, over 36% lower than Singapore's close of $49.08/bl last Friday. The last time crude futures fell by over 30% between trading sessions was at the start of the first Gulf War in January 1991, according to data from the Energy Information Administration.

Crude futures had tumbled after the collapse of OPEC's alliance with Russia, which was swiftly followed by Saudi Arabia slashing offers for its crude oil over the weekend, sparking talk of price wars among the major oil producers.

Asia oil product prices similarly tanked on Monday but at a rate slightly lower than crude, which meant that refining margins actually rose for most products.

April Singapore 92 RON gasoline swaps tumbled 26% to $39.39/bbl Monday morning in Asia from Friday's close, while its crack spread gained 1.5% to $4.81/bbl.

April Japan naphtha swaps fell by the same percentage to $300/mt but its crack spread rose by over $6/mt to $44.175/mt, according to broker data.

April Singapore jet fuel prices and 10 ppm sulfur gasoil slumped 24% and 23% to $42.32/bbl and $44.55/bbl, respectively but the crack spread rose by $3.25/bl and $3.21/bl to $10.00/bbl and $12.23/bbl respectively.

May Singapore 0.5% sulfur fuel oil swaps fell by a similar magnitude of 23% to $293.50/mt during morning trading while its crack spread rose by almost $2/bbl to $8.77/bbl.

The rise in crack spreads however might be only short-term relief for refiners already struggling with narrow margins.

"Refining margins may rise slightly for a day or two as falls in product prices could be slower than crude, but it may not last longer unless demand revives," a South Korea-based analyst said.

Refiners throughout Asia have already been cutting runs even before the latest collapse in crude prices, as the rapidly spreading coronavirus disease 2019

(COVID-19) severely curtailed oil demand.

"This is a clear double whammy," the analyst added.

The sharp fall in prices are expected to affect trading and price negotiations.

Market participants now expect spot jet fuel and gasoil cargoes awarded previously to be cancelled as prices for products fell to a new low.

"Cancelling a spot tender, and paying penalty, then buying at current levels is probably more profitable now," a trader said.

The impact of increased production from the Middle East could also throw yet another spanner into an Asian LPG market already buffeted in recent months by the US-China trade war.

China had allowed for hefty import tariffs to be removed from US-origin LPG imports only on Mar 3, which meant that both US and Middle East-origin LPG are now subject to the same 1% import tariff.

But the prospect of increased production in the Middle East meant that LPG cargoes from that region might remain competitively priced relative to US cargoes, market sources said. The Saudi April CP, which sets the contract price for term LPG cargoes from Saudi Arabia, is likely to be at a discount to Cost and Freight (CFR) Japan prices as a result, market source said. Paper markets had indicated on Friday that April CP would be at a $8/mt premium to CFR Japan prices.

Further downstream, aromatic prices too fell sharply. Benzene spot prices plunged by an estimated $102.50/mt or 16.5% after offers for benzene parcels loading April and May were slashed by as much as $100/mt to $525 and $520/mt FOB Korea, respectively by noon in Asia.

OPIS Mobile News Alerts provides instant access to real-time petroleum industry news from veteran OPIS reporters. For over 35 years, OPIS has guided jobbers, retailers, suppliers, refiners, traders, brokers, end users, and other industry professionals through a sea of volatility. Tell Me More

 

--Reporting by OPIS Asia team;

--Editing by Rob Sheridan, rob.sheridan@ihsmarkit.com

 

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