January 04, 2024

Crude Oil and Refining: Quarter four performance

Deepening political tensions in the Middle East initially reinforced a view of supply constrained oil markets established on deeper than expected cuts to supply by OPEC+ alliance into the second half of the year.  Penetration of non-OPEC supply coupled with widespread economic pressures transformed consensus view of markets towards demand constrained by November.  Brent crude oil prices switched from higher bound to lower bound of the year, dropping US$15/bbl to settle near US$75/bbl in December.  Cost of petrochemical feedstocks sourced from the refinery followed downturn of crude oil prices and naphtha prices dropped US$100 per ton through October and November. 

Robust demand for transportation fuels led annual growth in world oil demand to peak at 3.2 percent in second quarter of 2023.  China contributed half of the 3.2 million barrel per day (mmbpd) increase in world demand as growth rates surged to 11 percent following suspension of zero COVID-19 policy.  Widespread strain in regional economies curbed demand into second half of the year, with industrial fuels most exposed.  European crude oil demand buckled 2.8 percent on the year, after stagnating through first half.  A steep drop in diesel demand approaching 0.6 mmbpd accounted for 80 percent of losses in July and August.  Oil demand in the United States stagnated into September, with a drop of 0.4 mmbpd in gas oil and fuel oil demand displacing steady growth in kerosine demand.  Resilient demand in China countered deepening weakness in regional markets.  Annual demand growth remained above 11 percent.  Apparent strength stemmed from low base of transport fuel prior to full lifting of COVID-19 restrictions opening 2023.  Modest contribution from petrochemical feedstocks and industrial fuels reflected fragile economic climate. 

Global oil markets weakened into the second half of 2023 as demand growth slowed ahead of supply.  World oil production peaked above 102 mmbpd in October and eased 0.4 mmbpd into November.  Oil stocks lengthened as supply showed considerable inertia to weakening demand.  OECD oil stocks reported at 2 818 million barrels in October increased five percent on the year but remain 2.5 percent down on the five year average.  Repeated cuts to production by the OPEC+ alliance over the last year ultimately had little impact on global supply.  Record production in the United States swiftly penetrated global markets and share of world oil supply offered by OPEC members narrowed towards 27% by November.  Deepening political tensions in the Middle East failed to disrupt supplies prompting OPEC + alliance to agree heavier voluntary cuts to production in the opening quarter of 2024. 

Crude oil prices opened quarter four at a twelve month high approaching US$90/bbl as deeper than expected OPEC production cuts sparked fears of supply shortages.  News of lengthening oil stocks initially calmed markets and prices promptly tumbled ten percent to approach the US$82/bbl average of first three quarters.  Deepening political tensions in the Middle East restored a risk premium and average Brent crude oil prices settled at upper end of year to date, averaging US$91/bbl.  Oil prices fell heavily through November as a bleak economic environment returned consensus view of oil markets to demand constrained position considered in quarter two.  Brent prices tumbled 20 percent and cleared the price peak built through quarter three.  Prices found a floor around US$75 per barrel settling at lower end of the yearly range in December. 

Cost of petrochemical feedstocks sourced from the refinery closely followed the downturn of crude oil prices in demand constrained markets.  Naphtha prices dropped US$100 per ton from their September peak to settle at a floor approaching US$600 per ton in December.  Propane retained a considerable discount to naphtha, with seasonal upturn in gas prices much more muted than recent years.  A steep downturn in gasoline values drove refinery margins down towards more typical profitability and eased pressure on petrochemical prices competing in the gasoline pool. 

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Quarterly Business Analysis: Petrochemicals, Polymers and C1 Chemicals - Q4 2023

The Quarterly Business Analysis provides key insight into production economics for a broad range of commodity petrochemicals, polymers and C1 chemicals.  The analysis presents a review of costs, prices and margins for typical production assets, providing a valuable view of regional and value chain competitiveness and is is available for each key price setting region - Asia Pacific, Middle East, Western Europe and the United States.  A quarterly report provides insightful commentary to illustrate current trends, related to recent market developments.  The accompanying database is updated monthly.

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