Crude Oil and Refining: Quarter one performance

The year began with soft macroeconomic drivers of oil consumption offsetting supply side pressures of ongoing geopolitical tensions in the Middle East.  A steady downturn in crude oil prices through the closing quarter of 2023 was arrested as Brent crude oil settled around US$80/bbl.  Oil markets tightened through January and February and deepening fears of supply constraints firmed prices.  Weak underlying consumption and growth of non-OPEC+ supply capped prices through March near the 2023 full year average of US$82/bl.  Cost of petrochemical feedstocks sourced from the refinery followed crude oil prices, with naphtha prices firming about US$30 per ton through January and February.

Demand for transport fuels softened in the second half of 2023 as widespread strain in regional economies took effect.  European crude oil demand dropped 2.8 percent on the year, after stagnating through first half.  A steep drop in diesel demand headed losses.  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 kerosene demand.  Modest contribution from petrochemical feedstocks and industrial fuels reflected the fragile economic climate.  Supply from non-OPEC sources remained robust, and stock building remained evident.

Demand in the United States continued to weaken in opening months of 2024.  The Federal Reserve deferred cutting interest rates and refining capacity suffered unplanned outages in winter storms.  Planned maintenance held refinery utilisation below 83 percent in February.  Chinese demand remained fragile; crude imports slowed in January and February albeit increasing year-on-year from a low base disrupted by zero COVID-19 policy.  Economic weakness was evident elsewhere, with Japan slipping into recession.

Global oil markets tightened against fragile demand as supply constraints were more prevalent in the opening months of 2024.  Implementation of OPEC+ supply cuts of 0.3 mmb/d in Q1 was compounded by weather-related disruption to North American production, cutting global supply significantly in January.  Announcement in February that OPEC+ restrictions would be extended into the second quarter deepened pressure on prices.  Periodic attacks on Red Sea shipping routes and deepening geo-political tensions in the Middle East continued shaped a consensus view of tightening supply.

Tighter markets were apparent in draw of global oil stocks after consistent stock-building through much of 2023.  Upward price pressures from supply side increasingly outweighed counter pressure from adverse demand and crude oil prices rose moderately, with Brent firming above US$85/bbl by mid-March.

Cost of petrochemical feedstocks sourced from the refinery broadly followed crude oil prices.  Having dropped US$100 per ton from their September 2023 peak to bottom out at around US$630 per ton in November, naphtha rebounded US$35/ton to approach US$660/ton in February.  Military strikes on Russian refining and export infrastructure hastened the upturn of prices through March.  Propane retained a considerable discount to naphtha against a more balanced view of gas markets.  Gasoline realigned with firming naphtha prices after falling heavily in closing months of 2023.

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Quarterly Business Analysis: Petrochemicals, Polymers and C1 Chemicals - Q1 2024

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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