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March 21, 2022Crude Oil and Refining: Quarter One Performance
World oil markets tightened abruptly as the deteriorating political climate in Central and Eastern Europe sparked widespread fears of supply disruption from Russia, the world’s leading exporter. Demand remained resilient, with enhanced mobility emerging from the COVID-19 pandemic countering fears of mounting cost pressure on economic activity. A widening risk premium propelled oil prices to a 13 year high approaching US$130 per barrel in early March, leaping more than 65 percent from the start of January. Turbulent energy markets increased volatility in relative competitiveness of oil and gas, briefly restoring a wide cost advantage to propane relative to naphtha in petrochemical feedstock applications.
Global oil demand continued to firm into the opening months of 2022, with restoration of mobility emerging from the COVID-19 pandemic offsetting fears of mounting cost pressure in an increasingly fragile economic climate. World oil demand climbed above 100 million barrels per day (mmbpd) in the closing quarter of 2021, with annual growth of 6.5 mmbpd reported in December. Western markets led the recovery in demand, with annual growth rates in Western Europe and the United States approaching ten percent. A revival of kerosine demand bolstered volumes in Western markets as relaxation of COVID-19 restrictions in the aviation sector propelled annual growth above 30 percent. Growth in Asian demand was much more subdued, with annual growth in China slowing towards three percent. Robust petrochemical demand for naphtha which increased 17 percent on the year in China was largely offset by a 0.2 mmbpd contraction in diesel and kerosene demand. The deepening conflict in Ukraine prompted European markets to seek substitution of Russian gas and oil although direct sanctions on energy streams were initially limited.
Global oil markets tightened into 2022, with oil supply stubbornly lagging the hastening upturn in demand. Estimated annual growth of 5.6 mmbpd in global oil production in December fell fourteen percent short of the upturn in demand. Production by OPEC members increased 0.6 mmbpd between December and February, realising just 75 percent of the uplift in production quotas proposed under the OPEC+ supply agreement. OPEC share of world supply in February climbed 0.3% to 28.6% by February, despite production falling short of increased quotas. Tightening markets were reflected in a consistent draw on OECD oil stocks which dropped to a 20 month low, ten percent below the average for the last 5 years. World oil markets tightened abruptly into March as opportunities to place export cargoes from Russia diminished with many parties reluctant to take delivery following the deepening conflict in Ukraine. Russia was previously the world’s leading exporter of crude oil, serving up to eight percent of global demand.
Deepening fears of supply side disruption against resilient demand accelerated the upturn in crude oil prices through the opening quarter of 2022. Brent crude oil prices increased 30 percent through January and February to climb above US$100 per barrel for the first time in seven and a half years. The risk premium widened sharply into March as the deteriorating conflict in Ukraine prompted many leading economies to shun Russian energy exports and in some case impose formal sanctions. Brent crude oil prices leapt a further 30 percent in early March to peak at a 13 year high approaching US$130 per barrel. Prices surged as global markets were anxious about the prospect of displacing exports from Russia which has been the leading supplier into global export markets.
Turbulent energy markets compounded volatility in petrochemical feedstock costs, with gas prices initially easing from the record highs witnessed in the closing quarter of 2014. Naphtha prices closely tracked escalating crude oil prices, soaring more than US$300 per ton through January and February to peak at a ten year high above US$1000 per ton early in March. Propane prices eased against escalating naphtha prices, opening a discount of more than ten percent to naphtha as gas prices briefly retreated from record highs witnessed in October. Average propane prices through January and February relaxed eight percent from quarter four. Refinery margins strengthened into the opening months of 2022 as resilient demand for transportation fuels countered intense upstream cost pressure as oil prices escalated.
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Quarterly Business Analysis: Global - Petrochemicals, Polymers and C1 Chemicals - Q1 2022
Quarterly Business Analysis: Middle East - Q1
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.
About Us - NexantECA, the Energy and Chemicals Advisory company is the leading advisor to the energy, refining, and chemical industries. Our clientele ranges from major oil and chemical companies, governments, investors, and financial institutions to regulators, development agencies, and law firms. Using a combination of business and technical expertise, with deep and broad understanding of markets, technologies and economics, NexantECA provides solutions that our clients have relied upon for over 50 years.
