Factbox: Crude remains in the $20s/b as coronavirus spread reduces demand


New York —
Petroleum prices fell Thursday, remaining in the $20s/b, as the coronavirus spread continued to reduce travel and demand for transportation fuels.

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The market remains glutted with crude as Saudi Arabia and Russia have yet to back off their plans to expand market share regardless of the drop in demand. The two countries appear no closer to a detente in their oil war, despite US pressure on Saudi Arabia this week, and a videoconference summit of G20 leaders to discuss the coronavirus’ impact on the world .

Global coronavirus cases continue to grow. According to Johns Hopkins University, there were 491,623 confirmed cases Thursday, up 240,119 cases in a week. Cases in China have flattened out at roughly 82,000, with the growth coming from the rest of the world.

Gasoline and jet fuel crack spreads have been especially hard hit, with some turning negative as governments increasingly close businesses and schools, while airlines slash flights.

In the US, for instance, 21 states have imposed stay-at-home orders, including states with the highest gasoline demand, such as California and New York.

According to S&P Global Platts Analytics, global oil demand is expected to decline around 4.5 million b/d in 2020.

Producers have responded to the low prices by revising their 2020 capex and production guidance lower, while refiners have responded to low transportation fuels demand and prices by cutting crude runs.

The US oil and natural gas rig count dropped by 47 to 766 this week, the largest weekly drop since December 2015, as exploration and production companies reduced activity, according to rig data provider Enverus.

The reduced activity should materialize in lower production eventually. The current $20/b crude environment is putting roughly 5 million b/d of high-cost crude production at risk of being shut in, according to Platts Analytics.



** at Midland, Texas, was assessed by S&P Global Platts at $18.60/b Thursday, down $40.84/b from January 20, when commodities markets first began reacting to the virus.

**Crude futures have moved into steep contango, which should encourage storage increases, with the NYMEX front-month contract closing Thursday at around an $11.82/b discount to the 12th month contract.

**Western Canadian Select at Hardisty, Alberta, was assessed at $9.61/b Thursday, underscoring the struggle many of the country’s producers will face to survive in the coming weeks and months.

**Atlantic Basin physical crude price differentials are weakening because of refinery run cuts, with West African Djeno crude, for instance, assessed at a $4.80/b discount to Brent on Thursday, down from a $1.50/b discount March 2.


**The Singapore jet crack spread against Brent ended Thursday at $1.49/b, down from $11.34/b January 20.

**The Rotterdam jet fuel crack against Brent ended Thursday at $1.85/b, down from $14.17/b January 20.

**The New York Harbor jet crack against Brent ended Thursday at $2.71/b, down from $14.19/b January 20.

**The FOB Korea jet fuel/kerosene price differential sank to a 12-year low Wednesday, assessed at a discount of $1.80/b to the Mean of Platts Singapore jet fuel assessment. South Korea’s consumption slumped 18.4% on the month to 2.78 million barrels, data from Korea National Oil Corp. showed.


**The May NYMEX RBOB crack spread vs ICE Brent ended Thursday at around minus 99 cents/b, down from $15.63/b one month ago.

**The May NYMEX ULSD crack ended Thursday at around $18.29/b, holding up relative to RBOB on confidence that industrial demand would not suffer the same fate as driving demand.



**Saudi oil giant Saudi Aramco is moving a substantial amount of its crude to storage caverns in Rotterdam in the Netherlands and Sidi Kerir in Egypt, in line with its pledges to supply more barrels to the market in April. This week, five tankers carrying a total of 7 million barrels of crude have been placed on subjects on a Sidi Kerir-to-Rotterdam voyage by Saudi state-owned shipping company Bahri.

**The Trump administration will continue to urge Congress to appropriate $3 billion to fill the Strategic Petroleum Reserve with US crudes after lawmakers removed the plan from a coronavirus relief package, the Department of Energy said Thursday. DOE formally withdrew a solicitation to buy 30 million barrels of medium and heavy crudes a day after Republican leaders of the Senate agreed to take the measure out of stimulus legislation as part of a deal with Democrats to break an impasse.

**With Saudi Arabia and Russia in a pricing war to flood the market with cheap crude, the crude contango has widened, encouraging global inventory builds.

**Over the next few months, Platts Analytics sees global “massive” crude stock builds of 500 million barrels in its best-case scenario, compared with the 1 billion-barrel build in its worst-case scenario, relative to end-February levels.

**Bank of America analysts expect global crude and refined products inventories could rise by more than 900 million barrels during the second quarter, with a risk of a surplus in the third quarter, as well.

Crude sales

**China’s imports from Saudi Arabia surged 25.8% on the year to 14.74 million mt, or 1.8 million b/d, in January-February, taking the supplier’s market share to 17.1%, data from General Administration of Customs showed Wednesday. This was the highest market share for a single supplier since May 2015, when the kingdom grabbed 18%.

**PetroVietnam aims to produce 10.62 million mt of crude in 2020, down 18.9% from 2019, and may further cut its production target as prices are too low and exports not profitable. Also, PetroVietnam’s oil and gas exploration and production projects have been impacted by the coronavirus outbreak as many contractors are unable to send workers to the operation fields as planned.

**With refined products demand weak, several refiners in North declined offers from Middle East producers for additional crude volumes to their allocated April term barrels, despite low oil prices. Japanese refiners are still mulling whether to increase crude oil purchases from Saudi Arabia and the UAE for May loading programs, after seeing no room for additional intake from the Middle East for April.

**The spot export arbitrage for US crudes has started to reopen, with Platts Analytics calculations showing the WTI MEH arbitrage against Forties crude now open to Northwest Europe and Northeast Asia.

**Saudi Aramco will pump at its maximum 12 million b/d crude production capacity and draw 300,000 b/d from storage in April, under its plan to supply the market with 12.3 million b/d in the month.


**Some of the world’s biggest airlines are slashing their flights for the coming months, and jet fuel demand, which accounts for almost 8% of total oil demand, is taking an unprecedented hit.

**Singapore Airlines Group said Monday it was cutting 96% of its capacity through the end of April in the wake of travel restrictions, while the UAE’s Emirates, the world’s biggest long-haul airline, will suspend most passenger flights as of March 25, operating mainly cargo.

**The International Airlines Group, which includes British Airways, Vueling and Iberia, plans to reduce capacity by at least 75% compared with April and May 2019.


**Global producers have announced spending cuts and reduced operations because of low prices, with the bulk of the cuts coming from North America.

**Cutbacks have begun to materialize in rig activity. The US oil and natural gas rig count fell by 47 to 766 this week, with 20 of those rigs coming from the Permian Basin, according to rig data provider Enverus.

**In Latin America, ’s Petrobras slashed investment spending to $8.5 billion from $12 billion previously, with the cuts made primarily by postponing exploration activity at subsalt acreage acquired at recent production-sharing auctions, delaying the connection of production and injection wells at production platforms, and halting construction of production and refining installations.

**Argentina’s biggest oil producer, YPF, is maintaining oil production during a coronavirus-sparked lockdown of the economy, but a 30%-40% plunge in local crude demand has the state-backed company to plan to step up crude exports despite low international prices.

**A plunge in prices has slashed the profit potential for oil production in Argentina, raising concerns a cutback in investment could stymie the development of Vaca Muerta, its biggest shale play and one of the largest in the world. Pampa Energia, one of the biggest energy companies in Argentina, has postponed its drilling plans in Vaca Muerta.

**Peru’s oil and gas producers urged the government to draft a bailout plan for the country’s producers in the face of free-falling crude oil prices. The government needs to suspend royalties, taxes and all investment commitments for producers until July to avoid the shutdown of oil and gas fields, the Peruvian Hydrocarbon Society said.

**European producers have joined in. Most recently, Italian oil and gas company Eni is to cut capital and operational expenditure over the next two years due to sharp drops in commodity prices, following similar moves by a number of global energy majors.




**Refinery utilization rates have risen across China, with state-owned oil giants raising run rates to around 70% of their combined nameplate capacity in March from a record-low 67% in February, an S&P Global Platts survey showed Wednesday. Independent refineries in eastern Shandong province also lifted their average run rates to 60.3% as of March 25 from an average of 41.5% in February, according to local information provider JLC.

**Japanese refiners are considering cutting operating rates further in April, despite the rate in March falling to the typical turnaround level before the maintenance season has started, as global demand for refined products plummets. Japan’s crude throughput fell a further 2.9% week on week to 2.82 million b/d over March 15-21, the Petroleum Association of Japan said Wednesday.

**Refiners and midstream companies have also announced cuts, with Phillips 66 putting on hold two crude pipeline projects meant to deliver Permian crude to the US Gulf Coast: the Red Oak Pipeline and the Liberty Pipeline.

**Phillips 66 has cut its capital spending for 2020 across all its businesses by $700 million, to $3.1 billion, and cut back to minimum rates on its 13 refineries in the US and abroad.

**A number of refineries in Europe have reported cutting runs, including ExxonMobil’s Gravenchon and Fos plants in France, and API’s Falconara plant in .

**Refiners in Vietnam have been forced to lower their production capacity. State-controlled PetroVietnam’s Binh Son Refining and Petrochemical has cut the capacity of its 148,000 b/d refinery at Dung Quat to 105%, down from 108%, before the end of February, a BSR official said Tuesday.

**Brazilian state-led oil company Petrobras has postponed the much-anticipated sale of eight refineries, widened safety measures to ensure offshore production is maintained and tapped revolving credit lines to ward off the impact of the coronavirus pandemic. The refinery sales are the crown jewel of Petrobras’ asset-sales program, which aims to raise $20 billion-$30 billion for the company and fund continued development of the massive subsalt frontier over the next five years.

**With US crude exports expected to fall, most of the nearly 10 offshore crude export projects initially proposed in the Gulf of Mexico will likely not be built. Port of Corpus Christi CEO Sean Strawbridge only sees a couple of them coming to fruition: Bluewater and the SPOT terminal offshore of Houston led by Enterprise Products Partners and Enbridge.

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Source: Platts


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