Crude Oil refining margins remain lacklustre (weighed down by light product cracks in particular), with a few run cuts materialising in Europe. Refineries that have returned from maintenance are refraining from boosting utilisation rates, limiting the need to actively bid at the prompt.
—Asian refineries are at the height of their maintenance schedule, and with the prevailing compressed margins, Bank does not expect utilisation rates to surge as the maintenance season fades.
–A general reduction in non-OPEC shortfalls, with volumes from Sudan coming back, has helped relieve significant sources of stress in the supply system for now. However, other sources of geopolitical and technical challenges are emerging through the supply system.
The three factors mentioned above are weighing on the prompt month crude oil futures and should continue to do so, at least until the tail end of Q2; Barclays has noted in a report.
“At the prompt, we continue to see very few constructive elements across the demand-supply equation for crude oil. The OPEC basket price is also reflecting this weakness, briefly falling below the $100/bbl mark this week,” the bank report noted.
Overall, Barclays maintans its view that the short-term weakness in fundamentals is likely to fade as
the tail end of Q2 approaches.
On the demand side, the first indication to watch out for would be a recovery in petrochemicals in Asia.
However, such a pick-up is unlikely to be a straight line, in Barclays’ view. The naphtha market faces weight from oversupply and mild end-user consumption (in February and March, Chinese demand for the product fell by an average 3% y/y).
The supply side in Asia continues to be buoyed by incoming arbitrage volumes from Europe and the US on favourable east-west spreads. Around 1mt of heavy naphtha is expected to arrive in May for delivery in June (compared to typical flows of 0.6mt).
Compounding the weakness for naphtha cracks in the region, more supply is expected to come from Indian refiners as they boost exports as they emerge from maintenance season.
“The above factors will, in our view, be closely watched by other refineries in Asia as they emerge from maintenance, and a fair degree of tentativeness is likely to be exercised in boosting utilisation rates,” the Bank said.
“In our view, end-consumption for the olefins market (polyethylene, polypropylene, and styrenic resins) should pick up in June, buoyed by attractive prices and an improvement in manufacturing activity,” it added.
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