Murky demand picture
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Refiners mix surplus jet fuels into maritime fuel; spending cuts to reverse in ’21
In choppy trading, West Texas Intermediate crude rose briefly up into the $40s early Sept. 23, as Brent and Alaska North Slope prices meandered along the lower depths of a $40 to $45 per barrel trading channel that has loosely bounded the major indexes for weeks.
Brent flirted with the $42 mark Sept. 23, and ANS closed above $40 Sept. 23, but prices remained subdued by muddy forward visibility as traders nervously eye coronavirus headlines, fearing new demand destruction.
The indexes resisted positive oil inventory data from the U.S. Energy Information Administration, and a surge in natural gas futures, which rose more than 19% Sept. 23 from a seven-week low set in the previous session.
Commercial crude inventories fell by 1.6 million barrels, while U.S. oil demand improved to 18.4 million barrels per day, besting demand of 17 million bpd from the week prior, the EIA said Sept. 23 in its weekly petroleum status report.
The EIA said gasoline demand rose on the week but remained down about 9% year over year. Jet fuel consumption remained 45% below 2019 levels.
The jet fuel glut was underscored by a Sept. 21 Bloomberg report which revealed that refiners have been blending normally premium priced passenger plane fuel into typically cheaper shipping fuel.
Straight-run kerosene - usually processed into jet fuel - is going into very low-sulfur fuel oil for the maritime industry, along with higher than normal amounts of diesel and vacuum gas oil, the report said.
“Only in a situation where the economy is in complete tatters, do we see usually more expensive components heading straight into VLSFO,” said Eugene Lindell, a senior analyst at consultant JBC Energy GmbH.
Refiners typically mix a variety of fuel oil and distillates into fuel for ships, but the use of jet fuel has a limiting factor. Too much jet fuel in the mix is risky for ships.
“Jet fuel grades can have a far lower flash point, or temperature at which it ignites, than what’s required for shipping fuels,” Tim Wilson, principal specialist for fuels, lubes and emissions at Lloyd’s Register, told Bloomberg.
Going forward, oil demand from China and India is uncertain after both nations stockpiled crude at lower prices earlier in the year.
China’s current inventory and even its storage capacity are largely unknown outside of the country.
India purchased 16.71 million barrels of crude during April and May, filling its three Strategic Petroleum Reserves at Vishakhapatnam, Mangalore and Padur, India’s Ministry of Petroleum & Natural Gas said in a Sept. 21 statement.
“The average cost of procurement of crude oil was US$19 per bbl as compared to US$60 per bbl prevailing during January 2020, thus resulting in saving of US$685.11 million,” the ministry said.
Fuel demand in August posted its biggest decline since April as local lockdowns inhibited economic activity and transportation, the ministry said. Petroleum product sales fell in August, down 7.5% over the previous month and 16% from a year earlier.
On the supply side, the spectre of a return of Libyan crude looms over the market. Libya’s national oil company plans “260,000 barrels a day of supply already next week, around 150,000 b/d higher than what has been typical over recent months,” analysts at Vienna-based JBC Energy said.
O&G industry spending set for reboundPostponed spending by oil and gas companies due to the COVID-19 crisis will cause the total worth of final investment decisions to double next year and exceed pre-pandemic levels in 2022, Rystad Energy said.
Total 2020 committed spending will drop to $53 billion from 2019’s $190 billion, Rystad said, adding that offshore commitments are expected to reach $34 billion in 2020 - down from 2019’s $101 billion, while onshore sanctioning is likely to fall to $19 billion this year from $89 billion last year.
Rystad said it expects total sanctioning to bounce back to around $100 billion in 2021, primarily supported by offshore projects - forecast at $64 billion for the year. Onshore expenditures are projected to account for $36 billion in 2021.
In 2022, onshore projects will jump to $100 billion, it said, topping the expected $95 billion in 2022 offshore commitments.
Rystad said it revised its 2020 offshore sanctioning total from $26 billion to $34 billion, driven by the Mero-3 sanctioning by Petrobras in Brazil - estimated to cost $2.5 billion to first oil. It also expects commitments by ExxonMobil and its partners worth $3.6 billion in 2020, related to the Payara development off Guyana.