Oil & Petrochemicals Monthly

Transcription

1 Executive summary ϢϢ Petchem price movement: The drops in most petrochemical prices continued in October. While Aramco reducing feedstock prices in November amid a noticeable decline in oil prices. Of the 21 Petchem basics and final products covered in the report, the prices of 17 products declined M/M; while the prices of 4 products rose. Ethylene prices declined the highest, by 20.7% M/M, to USD 960 per ton, followed by prices of Styrene, which plunged by 16.4% M/M to USD 1,170 per ton. Urea prices witnessed an increase of 3.1% M/M, to USD 330 per ton and PP-Asia prices rose by 2.0% M/M to USD 1,270 per ton. ϢϢ Oil price performance: Brent prices declined 6.2% M/M, WTI prices by 7.7% M/M, in October, ending at USD 77.6 and USD 67.6 per barrel, respectively. Early in October, oil prices saw a sharp decline due to some bearish data from the EIA and worries over demand. Meanwhile, OPEC revised its forecast with a slower expected growth in demand. While the IEA highlighted an increase in oil supply by 2.6 mbpd compared to same period last year. Oil prices continued on downtrend as demand for OPEC crude is forecast to decline 0.9 mbpd to an average of 32.6 mbpd in FY18. and 31.5 mbpd in Moreover, Brent prices crossed the USD 86/barrel early October, but prices fell sharply later due to a huge build up in US crude inventories. ϢϢ Outlook of International Energy Agencies: According to the IEA s oil market report, the global demand growth for oil is expected to average 1.3 mbpd and 1.4 mbpd in FY18 and FY19, respectively. The report further states that OPEC s oil output rose to a year s high of mbpd in October. Global supplies grew to mbpd, which was 2.6 mbpd higher than supplies a year ago. According to OPEC, average oil consumption remains unchanged at mbpd in FY18. OPEC s oil production rose by 127 kbpd to mbpd in October. Non-OPEC supplies are forecasted to average mbpd and mbpd in FY18 and FY19, respectively. The demand for OPEC crude is estimated to average 32.6 mbpd in FY18 and 31.5 mbpd in FY19. According to the EIA s Short-Term Energy Outlook report, Brent is expected to average USD 72 per barrel in FY18 (Down USD 3 per barrel from the previous month s estimate) and WTI is estimated to average USD 7 per barrel lower than the average for Brent in FY19. The global consumption of petroleum and other liquid fuel is likely to expand by 1.5 mbpd in FY18 and 1.45 mbpd in FY19. OPEC s unplanned oil supply disruptions averaged 1.73 mbpd in October. Analyst Jassim Al-Jubran j.aljabran@aljaziracapital.com.sa 1

2 2 Decrease in most petrochemical prices continues; whereas Aramco reduced the Propane price (feedstock) for November contract by 17.6% to USD 540 per ton; which is likely to mitigate the impact on 4Q-18 margins amidst drops in endproduct prices. Propane and butane prices surge in October, but a massive price decline was witnessed in November: Propane and Butane prices rose to USD 655 per ton in October. The PP-propane spread contracted further to USD 605 per ton in October from USD 640 in September. However, Aramco reduced the Propane price for November contract by 17.6% to USD 540 per ton and by 19.8% for Butane to USD 525 per ton. Naphtha prices plunge: Naphtha prices fell 11.2% M/M to USD 635 per ton in October, compared with September. PP prices rise, while PE prices drop: PP prices rose 2.0% M/M to USD 1,270 per ton in October. Propylene prices declined 4.0% to 1,090 per ton. HDPE and LDPE prices were down 1.6%, and 0.9%, respectively. Polystyrene prices drop: Polystyrene prices fell 4.4% to USD 1,420 per ton in October, in conjunction with a 16.4% decline in styrene prices to USD 1,170 per ton. During the month, PVC prices plunged by 2.3% to USD 850 per ton. MEG (Asia) and ethylene prices plunge: MEG (Asia) prices fell 10.1% M/M to USD 800 per ton in October. Ethylene prices dropped 20.7% M/M to USD 960 per ton. Methanol-China prices increased by 2.4% to USD 420 per ton. Titanium dioxide prices slightly declined: The weighted average price of titanium dioxide rose 0.7% M/M to USD 3,402. Urea prices swell, but DAP and ammonia drop: Ammonia prices dropped by 5.6% to USD 340 per ton, while urea prices surged 3.1% to USD 330 per ton in October. DAP prices declined by 2.4% to USD 410 per ton. Prices drop in October, fall sharply in November Oil prices continue to drop on oversupply and expected slowing demand: Early in October, oil prices saw a sharp decline due to some bearish data from the EIA and worries over demand. Meanwhile, OPEC revised its forecast with a slower expected growth in demand. While the IEA highlighted an increase in oil supply by 2.6 mbpd compared to same period last year. Oil prices continued on downtrend as demand for OPEC crude is forecast to decline 1.1 mbpd to an average of 31.5 mbpd in Moreover, Brent prices crossed the USD 86/barrel early October, but prices fell sharply later due to a huge build up in US crude inventories. Oil prices drop in October, entered bear market territory early November: Brent prices declined 6.2% M/M, WTI prices by 7.7% M/M, in October, ending at USD 77.6 and USD 67.6 per barrel, respectively. The Brent-WTI spread expanded to nearly USD 10.0 per barrel in October from USD 9.5 per barrel in September. Natural gas prices at Henry Hub gained 5.9% M/M to USD 3.2 per MMBtu. EIA raises US crude production estimates for FY18 and FY19: In its latest short-term energy outlook, the EIA expects oil output in the US to average 10.9 mbpd in FY18, and forecasts an increase in output to 12.1 mbpd for FY19 OPEC oil production rise 132 kbpd in October: According to the Monthly Oil Market Report (MOMR), OPEC s oil production rose to mbpd in October. The OECD s commercial inventories fell 25.3 mn barrels from the latest five-year average, with a forward cover of 59.3 days. Table 1: Petchem Prices October 2018 Name Price (USD pet ton) M/M % YTD % Naphtha % 3.3% Saudi Propane % 11.0% Butane-Saudi % 14.9% Ethylene % -27.8% Propylene-Asia 1, % 15.3% HDPE 1, % -1.6% LDPE 1, % -6.7% LLDPE -0.9% -4.8% PP-Asia 1, % 9.5% Styrene-Asia 1, % -8.9% Polystyrene-Asia 1, % -2.1% Tio2* 3, % 4.3% PVC-Asia % -2.3% MEG (Asia) % -15.8% Methanol-China % 2.4% DAP-Gulf % 1.2% Urea-Gulf % 37.5% Ammonia-Gulf % 3.0% MTBE-Asia % 6.4% Butyl-A 1, % 31.2% BPA 1, % 9.8% Acetic Acid-AA % 14.4% EVA 1, % -0.3% Vinyl Acetate Monomer-VAM 1, % 1.3% Source: Argaam, Reuters Eikon, AlJazira Capital Research *The weighted average price of Tio2 Table 2: Economic Calendar Date Country Event Nov 06,13,20,27 US Weekly Petroleum Status Report 31-Dec to 07-Jan KSA Unemployment Rate Nov 15,21,29 US Initial Jobless Claims 15-Nov to 25-Nov KSA CPI YoY 19-Nov KSA September Crude Oil Output Exports: JODI 20-Nov to 05-Dec KSA Non-Oil Exports YoY 29-Nov KSA M1, M2, M3 Money Supply YoY 29-Nov KSA SAMA Net Foreign Assets SAR 6-Dec US Trade Balance 6-Dec KSA Emirates NBD Saudi Arabia PMI 11-Dec EIA Short-term Energy Outlook 12-Dec OPEC Monthly Oil Market Report 13-Dec US Monthly Budget Statement 13-Dec IEA Oil Market Report 21-Dec US GDP Annualized QoQ Source: Bloomberg, IEA, EIA, OPEC

3 Key comments from international energy agencies IEA Oil Market Report (Published on November 14) The global demand growth is largely unchanged in FY18 and FY19 to stand at an average of 1.3 mbpd and 1.4 mbpd, as weaker economy is largely offset by lower oil prices. OPEC s oil output rose to mbpd in October (up 240 kb/d on a year ago), the call on OPEC crude falls to 31.3 mbpd in 2019, 1.7 mbpd below current output. Global oil supplies grew in October to mbpd, which was 2.6 mbpd higher than a year ago. OECD s commercial inventories rose by 12.1 million barrels to 2,875 million barrels in September, and are likely to exceed the 5-year average when October data is finalized. OPEC Monthly Oil Market Report (Published on November 13) Oil consumption is expected to grow by 1.29 mbpd to an average mbpd in FY19 (down 70 tbpd from the previous month s estimate). OPEC s oil production rose 127 kbpd to mbpd in October, according to secondary sources. Non-OPEC supplies averaged an estimated mbpd in FY18, while in 2019, was revised up by 0.12 mbpd from the previous month to reach an average of mbpd. OECD commercial oil stocks rose 5.5 mn barrels M/M to 2,858 mn barrels in September; but 25.3 mn barrels lower than the latest five-year average, with a forward cover of 59.3 days. Demand for OPEC crude is forecast to decline 0.9 mbpd to an average of 32.6 mbpd in FY18. In FY19, demand is estimated to stand at 31.5 mbpd (down 1.1 mbpd from that in FY18). EIA Short-Term Energy Outlook (Published on November 06) Brent averaged USD 81 per barrel in October (up USD 2 per barrel from the previous month s estimate), and is expected to average USD 72 per barrel in FY19 (Down USD 3 per barrel from the previous month s estimate). WTI is estimated to average USD 7 per barrel (Down 5 USD per barrel from the previous month s estimate) lower than the average for Brent in FY19. EIA expects Henry Hub natural gas spot prices to average $2.98/million British thermal units (MMBtu) in 2019 (down 4 cents from the 2018 average and down from a forecast average price of $3.25/MMBtu in the fourth quarter of 2018). US crude production averaged 11.4 mbpd in October FY18. Furthermore, production is expected to average 10.9 mbpd in FY18 (Up 0.2 mbpd from the previous month s estimate) and 12.1 mbpd in FY19 (up 0.3 mbpd from the previous month s estimate). As of October 26, natural gas inventories in the US stood at 3,143 bn cubic feet (up 9.7% M/M). This level was 16% lower than both the Oct-2017 level and the five-year ( ) average for the end of October. Global consumption of petroleum and other liquid fuels is forecast to expand by1.5 mbpd in FY18 (down 0.1 mbpd from the previous month s estimate) and 1.45 mbpd in FY19 (down 0.05 mbpd from the previous month s estimate). Non-OPEC production is projected to grow 2.55 mbpd in FY18 and 2.38 mbpd in FY19. On average, OPEC members produced 39.3 mbpd of crude in FY17. They are estimated to produce 39.1 mbpd in FY18 and 38.8 mbpd in FY19. OPEC s unplanned oil supply disruptions averaged 1.73 mbpd in October (up 0.27 mbpd from September). OECD inventories are expected to increase to 2.9bn barrels by end-2018 (up 0.1 mbpd from the previous month s estimates) and further increase to 3.0bn barrels in FY19 (up 0.1 mbpd from the previous month s estimates). 3

4 Figure 1: US oil production US oil production averaged mbpd in October FY18. Production increased by 1.2% M/M in October from mbpd in September; it rose 14.8% Y/Y from mbpd in October FY17. mbpd Jun-14 Apr-15 Jul-16 Dec-16 Oct-17 Aug-18 Jan-19 Jun-19 Nov-19 Source: US EIA, AlJazira Capital Research Figure 2: US weekly Rig count ,068 In the week ended November 16, the rotary rig count in the US increased to 1,082 (up by 1 WoW). The average number of rigs rose by 1.0% M/M in October; vis-à-vis increased 0.2% in September. The rig count was up 17.5% Y/Y in October. Of the total number of rigs on November 16, 888 (up by 2 WoW) were used to drill for oil and 194 (down by 1 WoW) for natural gas. 0 Jul-14 Oct-14 Apr-15 Apr-16 Jul-16 Oct-16 Jul-17 Oct-17 Apr-18 Source: Baker Hughes, AlJazira Capital Research Table 3: World Oil Demand and Supply (mbpd) E E 2019E World Crude Oil & Liq. Fuels Supply Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 OPEC Supp Non-OPEC Suppl Total World Supply World Crude Oil & Liq. Fuels Cons. OECD Consumption Non-OECD Consumption Total World Cons OECD Inventory (mn bbls) 3,051 3,036 2,993 2,884 2,839 2,811 2,841 2,876 3,051 2,991 2,842 2,971 OPEC Surplus Crude Oil Prod. Cap OPEC s surplus production capacity fell to 1.40 mbpd in 3Q18 from 1.83 mbpd in 2Q18. 4 Source: EIA STEO September 2018, AlJazira Capital Research The gap between crude consumption and supply contracted to 0.20 mbpd by 3Q18 (higher consumption than supply) from 0.32 mbpd in 2Q18. OECD s crude inventories increased to 2,841 mn barrels in 3Q18.

5 Table 4: OPEC monthly oil production Prod. ( 000bpd) Cap. July Aug Sep Oct % M/M Chg. Equatorial Guinea % Gabon % Ecuador % Qatar % Algeria 1,080 1,060 1,070 1,050 1, % Libya ,050 1, % Angola 1,580 1, 1,440 1,530 1, % Venezuela 1, 1,310 1,330 1,260 1, % Nigeria 1, 1,720 1,760 1,800 1, % Kuwait 3,000 2,770 2,830 2,800 2, % U.A.E. 3,150 2,960 3,040 3,040 3, % Iran 3,850 3,740 3, 3,360 3, % Iraq 4, 4,560 4,640 4,660 4, % R. of Congo % Saudi Arabia 11, 10,370 10,390 10,530 10, % Total OPEC 35,085 32, 32,320 32,830 33, % Figure 4: US Weekly Oil Inventories Source: Bloomberg Figure 3: OPEC October Oil Production Saudi Arabia Iraq Iran U.A.E. Kuwait Nigeria Angola Venezuela Libya Algeria Qatar Ecuador Republic of Congo Gabon Equatorial Guinea -1, 1, 4, 7, 10, ('000 bpd) Source: Bloomberg Figure 5: OECD Monthly Oil Inventories 3, ,100 3,000 2, mbpd mbpd 2, , 2,600 Mar-14 Oct-14 Dec-14 Feb-15 Dec-15 Apr-16 Jul-16 Nov-16 Jun-17 Nov-17 Aug-18 2, Jul-14 Oct-14 Apr-15 Apr-16 Jul-16 Oct-16 Jul-17 Oct-17 Apr-18 Jan-19 Apr-19 Jul-19 Oct-19 US weekly oil inventories rose 2.1% WoW to mbpd for the week ended November 9; moreover, inventories increased 5.5% M/M from mbpd on October 31. Source: US EIA, AlJazira Capital Research OECD oil inventories are projected to reach 2,898 mn barrels at the end of FY18. These are expected to increase to 3,005 mn barrels at the end of FY19. Source: US EIA, AlJazira Capital Research Figure 6: World Oil Production and Forecast Figure 7: US Weekly Natural Gas Storage 4,000 3, 3,000 2, 2,000 1, Q1-13 Q2-13 Q3-13 Q4-13 Q1-14 Q2-14 Q3-14 Q4-14 Q1-15 Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 Q4-18 Q1-19E Q2-19E Q3-19E Q4-19E world production world consumption Mar-17 Jun-17 Nov-17 Feb-18 May-18 World oil production forecasts for FY18 decreased to mbpd; the forecast for FY19 has increased to mbpd. Source: US EIA, AlJazira Capital Research US Weekly Natural Gas storage rose 2.1% WoW to 3,208 bcf in the week ended November 02, while it surged 8.5% M/M. Source: US EIA, AlJazira Capital Research 5

6 Oil and gas price trends Figure 8: Brent Crude (USD per Barrel) Figure 9: WTI Crude (USD per Barrel) Feb-15 Aug-15 Nov-15 Mar-16 Dec-16 Mar-17 Jun-17 Apr Feb-15 Aug-15 Nov-15 Mar-16 Dec-16 Mar-17 Jun-17 Apr-18 Figure 10: OPEC Reference Basket Figure 11: Henry Hub Natural Gas (USD per mmbtu) Feb-15 Aug-15 Apr-16 Jul-16 Oct-16 Jul-17 Oct-17 Apr-18 6

7 Petchem price trends Figure 12: Naphtha (USD per Ton) Figure 13: Propane (USD per Ton) 980 1, , ,800 1, 1,720 1,600 1, 1, 1, 1,200 1,050 Figure 14: Butane (USD per Ton) Figure 15: HDPE (USD per Ton) 1, 1,600 1,620 1, 1, 1, 1,200 1,045 Figure 16: LDPE (USD per Ton) Figure 17: MEG-Asia (USD per Ton)

8 Figure 18: Polypropylene (USD per Ton) Figure 19: Polystyrene (USD per Ton) 1,600 1, 1,560 1, 1,800 1,815 1, 1, 1, 1,200 1,600 1, 1, 1, 1, ,040 Figure 20: Methanol-China (USD per Ton) Figure 21: Urea (USD per Ton) Figure 22: Ammonia (USD per Ton) Figure 23: TiO2 US , 3, 3,595 3, 3,100 2, , 2, , 8

9 Petchem Spreads Naphtha prices averaged USD 681 per ton in October, down from USD 686 per ton in September. Polypropylene average prices rose to USD 1,260 per ton in October from USD 1,240 per ton in September. The HDPE-naphtha spread stabilized at USD 591 per ton in October similar to September level. The PP-naphtha spread expanded to USD 579 per ton from USD 554 per ton. The HDPE-Ethylene spread expanded to USD 200 per ton in October from only USD 7 per ton in September. The PP-propane spread contracted to USD 605 per ton; the PP-butane spread stabilized to USD 605 per ton in October. The Polystyrene-Benzene spread expanded to USD 649 per ton in October from USD 631 per ton in September. Figure 24: HDPE-Naphtha Figure 25: PP-Naphtha Sep Sep-14 Sep-14 Figure 26: PP-Propane Figure 27: PVC-EDC Dec-14 Nov-15 Oct-16 Oct-17 May-18 Sep-18 Figure 28: Polystyrene-Benzene Figure 29: HDPE-Ethylene Sep-14 Sep-14 9

10 Table 5: Petchem Price Performance Name Price * (USD per ton) M/M % Chg. QoQ % Chg. Y/Y % Chg. YTD % Chg. Naphtha % -5.2% 14.4% 3.3% Saudi Propane % 18.0% 13.9% 11.0% Butane-Saudi % 14.9% 12.9% 14.9% Ethylene % -28.4% -20.0% -27.8% Propylene-Asia 1, % 2.8% 15.3% 15.3% HDPE 1, % -3.8% 1.6% -1.6% LDPE 1, % -3.1% -11.6% -6.7% LLDPE -0.9% -0.9% -7.6% -4.8% PP-Asia 1, % 3.7% 10.4% 9.5% Styrene-Asia 1, % -14.3% 0.0% -8.9% Polystyrene-Asia 1, % -4.1% 6.0% -2.1% Tio2* 3, % -1.4% 8.5% 4.3% PVC-Asia % -11.5% -5.6% -2.3% MEG (Asia) % -13.5% -11.6% -15.8% Methanol-China % 5.0% 23.5% 2.4% DAP-Gulf % -2.4% 12.3% 1.2% Urea-Gulf % 24.5% 11.9% 37.5% Ammonia-Gulf % 13.3% 17.2% 3.0% MTBE-Asia % -3.9% 13.7% 6.4% Butyl-A 1, % 28.1% 23.7% 31.2% BPA 1, % -11.2% 33.2% 9.8% Acetic Acid-AA % 11.7% 27.7% 14.4% EVA 1, % -2.6% -1.3% -0.3% Vinyl Acetate Monomer-VAM 1, % -9.4% 4.8% 1.3% *Weighted average Note: : *Prices as of October 28, 2018 **the weighted average price of Tio2 Table 6: Petrochemical Products by Saudi Petrochemical Companies Company SABIC Finished Products Polyethylene, polypropylene, poly styrene, ethylene glycol (MEG), methyl tert-butyl ether (MTBE), benzene, urea, ammonia, PVC, and PTA SAFCO YANSAB Tasnee Saudi Kayan Petro Rabigh Petrochem Sahara Petrochemicals Saudi Group Sipchem Advanced Alujain CHEMANOL NAMA MAADEN Urea, ammonia Polyethylene, polypropylene, MEG, MTBE, and benzene Polyethylene, polypropylene, and propylene (TiO2) Polyethylene, polypropylene, MEG, polycarbonate, and bisphenol A Polyethylene, polypropylene, propylene oxide, and refined petroleum products Polyethylene, polypropylene, and polystyrene Polyethylene, polypropylene Styrene, benzene, cyclohexene, and propylene Methanol, butanol, acetic acid, and vinyl acetate monomer Polypropylene Polypropylene Formaldehyde improvers concrete Epoxy resin, hydrochloric acid, liquid caustic soda, and soda granule Ammonia and DAP Source: Argaam Plus 10

11 RESEARCH DIVISION Head of Research Talha Nazar Analyst Muhanad Al-Odan Analyst Jassim Al-Jubran Analyst Waleed Al-jubayr BROKERAGE AND INVESTMENT CENTERS DIVISION RESEARCH DIVISION General Manager Brokerage Services & sales Alaa Al-Yousef AGM-Head of Sales And Investment Centers Central Region, & acting head Western and Southern Region Investment Centers Sultan Ibrahim AL-Mutawa AGM-Head of international and institutional brokerage Luay Jawad Al-Motawa AGM-Head of Qassim & Eastern Province Abdullah Al-Rahit AlJazira Capital, the investment arm of Bank AlJazira, is a Shariaa Compliant Saudi Closed Joint Stock company and operating under the regulatory supervision of the Capital Market Authority. AlJazira Capital is licensed to conduct securities business in all securities business as authorized by CMA, including dealing, managing, arranging, advisory, and custody. 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