Oil rebound extends, but LNG, jet remain bearish as coronavirus blunts demand

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Highlights

Dated Brent was assessed by S&P Global Platts at $59.61/b Thursday, up $6.495 from a February 10 nadir, but still 7% off its most recent high on January 20.

The recent recovery in crude prices has returned the Brent forward curve back into backwardation. Year-ahead Brent futures settled at a $1.69 discount to the front month Wednesday.

The one-year NYMEX WTI structure also flipped to a 25 cent backwardation Wednesday, but the curve was still in contango through the end of 2020.

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The Singapore jet crack spread against Brent ended Wednesday at $6.99/b, down from $11.34/b January 20.

The Rotterdam jet fuel crack against Brent ended Wednesday at $9.38/b, down from $14.17/b January 20.

The jet crack ended Wednesday at $9.38/b, down from $14.19/b January 20.


New York —
Oil prices climbed for a seventh straight session Wednesday as buying interest from Chinese refineries tempered long-term coronavirus demand destruction concerns, but jet fuel cracks and LNG prices were still lower amid weak prompt demand outlooks.

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Crude prices have steadily climbed off of a February 10 nadir, the date when most Chinese factories were slated to restart after an extend Lunar New Year holiday, but were still holding well under recent highs seen on January 20, when news of the outbreak began to take hold of the market.

Dated Brent was assessed by S&P Global Platts at $59.61/b Thursday, up $6.495 from a February 10, but still 7% below its January 20 peak.

Globally, the number of confirmed cases has risen to 75,205 with 74,188 of those in China, according to the Johns Hopkins University. At least 2,014 deaths have been attributed to the outbreak worldwide.

Travel restrictions were still preventing some employees from returning to work Thursday and factories expected only partial production restarts, with some delaying a return to operations until late February or early March.

Airlines have canceled flights, reducing jet fuel demand.

IP Week is going ahead in London next week but a growing number of oil industry events, evening receptions in particular, are being canceled as many companies take a cautious stance because of the coronavirus outbreak in China and the Asian trading hubs of Hong Kong and Singapore.

OPEC and its allies will meet in Vienna on March 5-6, officials confirmed Wednesday, formally abandoning plans to hold an earlier summit to confront the coronavirus’ impact on oil markets.

Saudi Arabia had urged other members in the alliance known as OPEC+ to meet in early to mid-February, as news of the coronavirus outbreak caused oil prices to plunge, but Russia, the key non-OPEC participant, balked.

PRICES


Oil


LNG

The Platts JKM, the LNG price benchmark for the Northeast Asia region, fell to $2.869/MMBtu Wednesday, up 15.6 cents from an all-time low $2.713/MMBtu on Friday but still down 31% from January 20.
The Platts FOB Gulf Coast LNG price ticked up 7 points to $2.152/MMBtu on Wednesday.


Shipping

The West Africa to East route for VLCCs was assessed at $16.57/mt Wednesday, down $15.85 since January 21.
The Arab Gulf to China VLCC route was assessed Wednesday at $9.39/mt, down $10.61 since January 20.


Metals

The front-month rebar futures contract on the Shanghai Futures Exchange closed at Yuan 3,374/mt Wednesday, down 8.8% from January 20.
Platts assessed the 62% Fe Iron Ore Index at $89.15/dry mt CFR North China Wednesday, up $9 from its February 3 nadir, but still down 7% from January 20.
The London Metal Exchange three-month copper price ended Wednesday at $5,769.00/mt, up $12.5 on the day and $501.5 lower from January 20. Copper is often seen as a barometer for global economic health.
TRADE FLOWS


LNG

The impact of China’s coronavirus outbreak on LNG market is expected to worsen in coming weeks as economic activity in key manufacturing hubs struggles to rebound, keeping a lid on natural gas demand and triggering more LNG trade flow disruptions.
“Since the beginning of February, we have spotted 14 LNG vessels, initially expected to deliver their cargoes in the Far East, to have diverted,” Nathalie Leconte, LNG market analyst at data intelligence firm Kpler said.
Leconte said more than half of these LNG carriers are expected to deliver their cargoes to other regions like the UK, Turkey, Bangladesh, Kuwait and , while six of them were still expected to deliver their cargoes to ports in the Asia Pacific.
In addition to these 14 vessels, two other LNG carriers — BW Lilac and Diamond Gas Orchid — were initially headed towards the East of Suez from the US, but were diverted and are currently expected to deliver their cargoes to France instead, Leconte added.
Kpler’s oil shipping analyst Samah Ahmed also said there was an increase in floating storage for crude oil around the Malacca Straits and Singapore since the onset of the virus.
China’s state-owned CNOOC has declared force majeure on LNG contracts.
CNOOC remains most affected due to the suspension of many factories and transport restrictions, and many domestic LNG terminals were running with high inventories due to the fall in gas demand.
Australian LNG exports are most exposed to any potential cargo cancellations by Chinese buyers.
Several US developers have delayed final investment decisions, with one warning it was running out of cash to continue normal operations.
Cheniere has a 1.2 million mt/year supply contract with PetroChina. Cargoes are being lifted, but have been diverted since last year due to Chinese .


Oil

OPEC and its allies will meet in Vienna on March 5-6, officials confirmed Wednesday, formally abandoning plans to hold an earlier summit to confront the coronavirus’ impact on oil markets.
A committee of OPEC+ delegates on February 7 recommended that the coalition deepen its existing 1.7 million b/d production cut accord by 600,000 b/d through the end of the second quarter to offset any demand impact from the infection.
Russia has yet to endorse the plan, citing the uncertainties of demand forecasts, but delegates said it was possible different levels of cuts could be discussed when OPEC+ meets in Vienna.
Demand for Chinese mainstays such as Russian ESPO Blend crude and medium sour Oman is expected to take a hit this month, with trade and economic activity declining.
Rosneft Vice-President for commerce and logistics, Otabek Karimov, said that the company had not experienced any disruptions to oil supply to China as a result of the coronavirus outbreak.
Low crude prices are encouraging China’s independent refineries to return to the international market for April/May crude delivery after a significant cut in throughput amid the coronavirus, but demand revival remains a key factor.
Hengyuan Petrochemical has recently booked a cargo of Lula for May delivery, at a premium of $2.20/b to ICE Brent futures.
A Liaoning-based independent refinery also booked a cargo of Sokol crude at a premium of around $4/b against Platts Dubai, for April delivery, according to trade sources.
Xintai Petrochemical has bought two cargoes of ESPO crude at around $2.3-$2.5/b on a DES Shandong basis for April delivery.
A few other refineries including Luqing Petrochemical, Jincheng Petrochemical, Wonfull Petrochemical, were heard to have started to book cargoes late last week.
US refining for some Latin American crudes are expected to rise, with cargoes once destined for China being offered at distressed prices to US refiners as impact of the coronavirus takes China’s refining capacity offline
“We are seeing, and it may be early …. evidence of Latin American, South American crudes that were going to the East, kind of being pushed back [because] of the run cuts in China and to economic run cuts throughout the world in many cases,” PBF Energy CEO Tom Nimbley said. He said those crudes are starting to show up on the US Gulf Coast and US West Coast.
With Asia’s crude buying curtailed while the region tackles the novel coronavirus outbreak, more oil from West Africa is being offered in Europe, pushing the Mediterranean’s light sweet grades down from their recent highs.
Key international airlines have suspended or reduced flights due to the virus.
Singapore Airlines and its regional unit SilkAir will temporarily reduce services across their network because of the coronavirus outbreak reducing demand.
Platts Analytics worst-case scenario shows a drop of 1.125 million b/d in global jet demand in February; its best-case scenario shows a drop of 876,000 b/d in for February.


Metals

Chinese steel production has slowed since early February due to weak demand and logistics constraints in receiving and delivering finished products amid the coronavirus outbreak.
But some market sources this week said the output cuts at steel mills were too small to prevent a surplus, pointing to latest data that showed finished steel stocks have surpassed last year’s peak and were continuing to rise.
More than a third of Chinese steel mills are considering cutting steel production due to rising inventories, a shortage of raw materials and weak downstream demand caused by the coronavirus, according to a recent S&P Global Platts outlook survey.
The survey found that 35% of survey participants had already trimmed steel output or were planning to, while 23% said their operations were running normally so far. Some mills had wanted to bring forward of their steelmaking operations – which is a proxy way of reducing production – but were unable to do so due to lack of workers and equipment.
Daily crude steel output by China Iron & Steel Association members fell 2.7% to 1.939 million mt/day over February 1-10 from 1.993 million mt/day in late January, latest CISA data showed.
According to Platts calculations, even if Chinese steel mills cut steel production by 10 million mt in February in the best-case scenario, finished steel inventories at mills and spot markets were likely to total 40 million mt by end February, up 24 million mt from end December, and equating to more than 30% of apparent consumption in a normal March.
The rise in stocks in China is mainly due to transport restrictions, although there is also an element of seasonality due to a typical fall-off in production during the Lunar New Year period, from BMO Capital Markets and ING Economics said.
Chinese steel market inventories surged 35% from end-December to 12.38 million mt on January 17, the China Iron and Steel Association said.
Market sources said depressed demand would see inventories exceed last year’s peak of 22.32 million mt by the end of this month, even as some mills announced steel production cuts of 20%-30% from March, partly due to the bringing forward of maintenance.


Shipping

Contango in crude forward curves is incentivizing the use of VLCCs as floating storage, market participants said Tuesday.
Floating crude storage in the anchorages around and Singapore rose steadily from 5.133 million barrels on January 21, to 17.636 million barrels on February 3, a more than threefold increase in less than two weeks, Kpler’s data showed. This remained at around 12.759 million barrels last week.
A 2000 built VLCC, the Ridgebury Progress, was taken by Vitol with to store crude near Singapore for three to six months, brokers in Singapore said.
With the coronavirus outbreak coinciding with the Lunar Year holidays, a lack of demand from China has been putting pressure on tonnage requirements out of the West African region. China is a major buyer of WAF crudes.
Delays in loading and delivery of cargoes in the tanker, dry bulk and container shipping segments are being reported due to ships being forced to sit idle amid a lack of crew availability.
Arbitrage flows of low sulfur fuel oil to Asia is set to plunge on fears of worsening demand for shipping fuel in the region, market sources said this week.
From Fujairah in the Middle East to the Asian bunkering hub of Singapore, traders are reporting sharp declines in fuel demand as shipowners brace for a potentially extended slowdown in global seaborne trade.


https://www.spglobal.com/

Source: Platts

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