Last updateFri, 03 Jul 2020 5pm

Fuel Prices Continually Drop Amid Coronavirus Fallout

“U.S. ultra-low sulfur diesel was the latest product refined from crude oil to take a hit in its cash market last week, after refiners boosted production in a bid to flee poorer margins for other products more affected by coronavirus fallout.”

Hydrocarbon Processing reports that “refiners’ moves to divert production capacity previously devoted to other fuels to diesel is starting to cause oversupply in some regions, leading to a drop in cash prices.”

February Data Shows Early Coronavirus Impact on Energy Markets

The American Petroleum Institute (API) released its February 2020 Monthly Statistical Report, providing an early indication of the impact of the coronavirus pandemic on energy markets. Data from the report reflect the onset of the virus with downturns in demand for diesel (-9.9% y/y) and jet fuel (-5.2% y/y), but a slight increase in gasoline (+0.3% y/y), suggesting many consumers chose to drive instead of fly in February.

“February data reflect the onset of the coronavirus and serve as an early indicator of the impact this global pandemic has had on energy markets,” API Chief Economist Dean Foreman said. “The demand destruction resulting from the coronavirus combined with Saudi Arabia and Russia increasing supply has left global energy markets in unchartered territory.”

U.S. Shale Output May Drop Significantly This Year

As a price-elastic source of supply, U.S. shale production will respond relatively quickly to the steep drop in oil prices. Already U.S. E&Ps are reporting further reductions to their 2020 spending guidance and cutting back on planned drilling activity. A new normal is here, with fiscal discipline and strong balance sheets even more important to weather current and future price volatility. ESAI Energy examined three price scenarios and the impact on shale basin production for the rest of 2020 under each scenario. A decline of somewhere between 170,000 b/d and 1.0 million b/d seems to be in the cards.

A sustained price under $40 will require significant restructuring, with many smaller producers unable to continue operating; bankruptcies will increase. This results in U.S. shale ending 2020 almost 1 million b/d lower than at the start of the year.

Global Chemicals Output Fell Sharply in January

Led by a large decline in China due to the effects of the COVID-19 coronavirus, the American Chemistry Council’s Global Chemical Production Regional Index shows that global chemicals production fell by 1.0% in January, a reversal of gains in November and December. During January, chemical production increased in Latin America, the Former Soviet Union, and Africa and the Middle East. Production fell in North America, Europe, and Asia-Pacific. Headline global production was up only 0.9% year-over-year on a three-month moving average basis and stood at 117.6% of its average 2012 levels.

Among chemical industry segments, January results were mixed, with bulk petrochemicals and organics, plastic resins, synthetic rubber, and manufactured fibers showing gains. Production was soft in other segments. Considering year-earlier comparisons, growth was strongest in manufactured fibers, followed by synthetic rubber, plastic resins, coatings, and bulk petrochemicals and organics.

U.S. Ethanol Reeling from Low Oil Prices, Lower Demand

“U.S. ethanol producers are feeling the pain as margins on the corn-based fuel slumped this week to an eight-year low for this time of year, weighed by concerns over lower fuel demand from the coronavirus and the recent collapse in oil prices,” Hydrocarbon Processing reports.

“With falling gasoline prices and lower expected gasoline demand, some market participants said it’s only a matter of time before ethanol plants decide to cut rates or shut.”

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