SK Innovation sees refining margins rebounding on IMO

Market: Oil products, Petrochemicals
29/07/19

South Korean refiner SK Innovation has raised its forecast for profit margins on distillates in this year's second half, as buyers begin to stock up on low-sulphur fuel and start testing ahead of International Maritime Organisation's cap on sulphur in marine fuels from 1 January 2020.

Margins also will get a boost from seasonal demand for gasoline, SK said. The outlook follows an April-June quarter in which the Asia-Pacific refining margin benchmark the Singapore GRM dropped to a decade-low of $1/bl from $2.70/bl a year earlier.

SK said gains in crude and fuel prices stalled late in the quarter as the US-China trade war deepened, raising uncertainty about the global economy. Margins rose in the third quarter, with the Singapore GRM averaging $6.90/bl through the first 25 days of July.

This outlook echoed that of rival South Korean refiner S-Oil.

SK said it sees petrochemical margins continuing to slump. Margins will remain weak amid China's slowing economic growth and additions of paraxylene (PX) capacity, the company said.

The average profit margin on polyethylene (PE) dropped to $479/t in the second quarter, down by 11pc from the previous three months, SK said. PE spreads slid by 28pc to $378/t, while PX margins fell to just $365/t, down by 35pc from the January-March average. But the average benzene margin rose by 21pc to $85/t amid firmer US demand.

SK's second-quarter operating profit fell by 42pc from year earlier to 497.5bn won ($419.8mn). Fellow South Korean refiner Hyundai Oilbank reported a 51pc fall in operating profit to W154.4bn.

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27/12/24

Shell shuts oil unit at Singapore refinery

Singapore, 27 December (Argus) — Shell has shut an oil unit at the 237,000 b/d Pulau Bukom refinery in Singapore to investigate a "suspected leak", said the Maritime and Port Authority of Singapore (MPA) and National Environment Agency (NEA) today. Shell informed the government agencies that they will have to shut one of its "oil processing units" at Pulau Bukom to facilitate investigations into a suspected leak. The exact oil processing unit cannot be confirmed, but it is a unit "used to produce refined oil products such as diesel". This means it is likely a crude distillation unit or a hydrocracking unit. Shell's initial estimates show that a few tonnes of oil products were leaked, together with cooling water discharge. Sea water is typically drawn to aid in the cooling process, according to the media release. This came after the 20 October leak at a pipeline at Pulau Bukom, when 30-40t of "slop" — or a mixture of oil and water — leaked into the sea, according to Shell. The gasoline market has shown little reaction so far with spreads being "stagnant" and "range bound", said a Singapore-based gasoline broker. But this could be because of a lack of market activity, with many traders away for holidays at the end of the year. The gasoil January-February spread last traded at $0.58/bl in backwardation at around 6:30pm Singapore time on 27 December, according to a Singapore-based gasoil broker. This marks a slight increase from an assessment of $0.55/bl in backwardation on 26 December, according to Argus pricing data. By Aldric Chew Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Viewpoint: US naphtha market poised for change

26/12/24

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26/12/24

Viewpoint: US naphtha market poised for change

Houston, 26 December (Argus) — US Gulf coast naphtha supplies accumulated in the last half of 2024 amid faltering demand, with gasoline blenders representing a higher profile buying sector, but a pending refinery closure is set to tighten the market. Demand for all naphtha grades was much weaker coming into December because of a bearish gasoline outlook and as elevated octane prices dampened naphtha demand. Poor refinery margins encouraged refiners to run minimally, cutting back on refiner demand as well. Gasoline blenders' demand for naphtha dominated in 2024, which highlighted stronger naphtha prices in visible trades. Prices for good quality, low sulphur N+A naphtha into the gasoline blend pool averaged about 10-15¢/USG above generic reformer feedstock naphtha. Naphtha sellers were also keen to export, which moved larger volumes without engaging in volatile domestic spot markets. US naphtha exports this year through mid-December were up by over 50pc to average 272,730 b/d from a year prior, according to Vortexa data. From November to mid-December, naphtha departures from the US were up on the year by 66pc to 312,800 b/d. Despite overall increased exports in 2024, weakened Asia Pacific and European naphtha markets in the latter half of December diminished arbitrage opportunities. Heavy virgin naphtha (HVN) differentials to Nymex RBOB hovered in the mid-to-stronger 30s¢/USG discounts in the first half of December, compared with upper Nymex RBOB -40s¢/USG observed in the same period last year. However, these higher differentials were attributed more to the lower Nymex RBOB pricing basis than market strength. Comparative cash prices hovered around 160¢/USG year on year, despite a 10¢/bl hike in differentials in 2024. Supply, demand changes in store A major supply change in the Gulf coast naphtha market should tighten the ample supply of naphtha by February. LyondellBasell is on schedule to begin a staggered shutdown of its 264,000 b/d refinery in Houston, Texas, in January. The last crude distillation unit (CDU) at the site is expected to shut by February. The refiner is a steady supplier of premium quality HVN with very low sulphur, which is typically sold into the gasoline blending market. Depending on production rates, LyondellBasell, also known as Houston Refining (HRC) in naphtha circles, can load 10-15 barges of the premium quality HVN a month. However, Gulf coast naphtha remains well-supplied. ExxonMobil's third CDU at its 609,000 b/d Beaumont, Texas, refinery started operations in 2023, adding more naphtha production to the region. Naphtha exports were also significant on the demand front in 2024, despite Gulf coast naphtha export opportunities to Venezuela being curbed again on 18 April. US sanctions on oil trades to Venezuela were eased in October 2023, but reimposed by April this year due to fresh political conflict. Naphtha exports to Venezuela are currently restricted to joint-venture partners such as Chevron and Reliance. Some participants hope the incoming administration of president-elect Donald Trump will re-address oil trading with Venezuela, keeping this an item to watch in 2025. US naphtha exports to Venezuela averaged 57,600 b/d in 2024, up from 11,100 b/d during 2023, according to Vortexa, on relaxation of Venezuela sanctions from October 2023 through May 2024. Meanwhile, naphtha exports out of the Gulf coast were still focused on shipments to South America, led by Brazil and Colombia. Exports to Brazil averaged 48,600 b/d in 2024, up by 68pc from 2023 while naphtha arrivals in Colombia averaged 36,600 b/d in 2024, up by 36pc from 2023. Colombia buys light naphtha from the US for use as diluent and sells full-range naphtha out of Mamonal port to the US. By Daphne Tan Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Viewpoint: US PGP prices set to rise in 2025

26/12/24

News

26/12/24

Viewpoint: US PGP prices set to rise in 2025

Houston, 26 December (Argus) — US spot polymer-grade propylene (PGP) prices are likely to increase into 2025, driven largely by several planned limitations on supply. By mid-December, the US PGP market had the sharpest contango structure between the prompt month and the forward month since Argus began tracking data over 10 years ago. A contango is when the next month's price is higher than the current month's price. On 12 December, December-delivery PGP at the Enterprise Products Partners (EPC) system at Mont Belvieu, Texas, traded at 35.75¢/lb, while January-delivery PGP traded twice at 38.75¢/lb. Argus ' PGP forward curve shows prices rising to over 40¢/lb by the second quarter of next year. Many factors are behind this record 3¢/lb premium for January PGP and the continued increase into mid-year. The first is that spot prices have dipped to their lowest levels since August 2023 on a rare period of no major supply disruption at propane dehydrogenation (PDH) units, which produce on-purpose propylene. Most propylene production in the US comes as a byproduct from refineries or as a co-product from steam crackers. All four US Gulf coast PDH units have been operating without major incident or extended shutdown since the late summer. Since mid-August, only Enterprise's PDH-1 was shut, for two weeks in mid-October, but this was not enough to stop the downtrend in PGP's spot price. US spot PGP prices declined by 40pc from a 12 August near-term peak of 58¢/lb to a low of 35¢/lb on 9 December. A second major factor behind the market's sharp contango is that PGP supply is set to tighten in 2025. Propylene supply will have a structural reduction when LyondellBasell's 264,000 b/d refinery in Houston begins shutting down units in January and completed closes by the end of the first quarter. The company sought to exit the refining business but could not find a buyer for the refinery, which produces 136,000 metric tonnes (t)/yr of propylene. There are no planned additions to US propylene capacity in 2025, and several US crackers that produce propylene as a co-product are set for turnarounds in the first quarter. Meanwhile, propylene demand is set to structurally rise in the second half of 2025, when Formosa's new 250,000 t/yr polypropylene plant in Point Comfort, Texas, is scheduled to come online. A third major factor indicating that US spot PGP prices in December are the lowest they will be for at least several months is seasonality. One market participant said that spot activity to end 2024 is largely characterized by sellers destocking inventory ahead of the state of Texas' ad valorem taxes on inventories. This tends to cause seasonally lower prices in December and then a rise in prices in January as the market restocks inventory. This trend has persisted for the last four straight years. These three major factors — uninterrupted supply to end 2024, supply tightening in 2025, and seasonal buying patterns — all stand behind the sharpest contango into the next year for propylene in 10 years of record keeping. The forward curve for PGP indicates a rise of 5¢/lb between now and the middle of next year. The forward curve, though, does not account for any unplanned shutdowns of PDH units, which happen frequently as PDH units are operationally less reliable than propylene-producing crackers and refineries. In July, the US had three of its four PDH units shut down, taking 2.9mn t/yr of on-purpose propylene capacity offline. Such incidents could spike prices for PGP above the uptrend expected into next year. By Michael Camarda Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Viewpoint: Tariffs may curb US bunker demand

26/12/24

News

26/12/24

Viewpoint: Tariffs may curb US bunker demand

New York, 26 December (Argus) — US president-elect Donald Trump's plans to enact new tariffs, especially those targeting Mexico and Canada, may curb demand for US bunker fuel and ripple across international markets. The proposed 25pc tariffs on imports from Mexico and Canada could affect all products coming into the US from those countries, including the significant volumes of residual fuel oil from Mexico and Canada that US Gulf coast and east coast buyers import. This could lift prices of residual fuel oil sold for bunkering in US Gulf coast and east coast ports, prompting some ship owners calling there to instead fuel outside the US in more price-competitive ports. Depending on their routes, ship owners could shift some of their bunker demand to Singapore, Rotterdam, Fujairah and Panama. Mexico alone supplied 74pc of the residual fuel oil imported to the US Gulf coast and and 29pc to the east coast in the first nine months of the year, according to US Energy Information Administration (EIA) data ( see table ). Meanwhile, Canada supplied 7pc and 16pc of the fuel oil imported to the US Gulf and east coasts, respectively. The US east coast imported 46,730 b/d of residual fuel oil and produced 35,000 b/d in the first nine months of the year ( see chart ). By comparison, the US Gulf coast imported 48,909 b/d and produced 161,667 b/d. Prices of Canadian and Mexican residual fuel oil exports to the US are typically benchmarked against US Gulf and east coast residual fuel oil prices. Should Trump implement the 25pc tariffs, companies bringing Canadian and Mexican residual fuel oil to the US could bid lower to try to offset their tariff costs. Lower bids from US buyers could redirect some of the Mexican and Canadian residual fuel oil exports to buyers in northwest Europe, Panama and Singapore. Or if Canadian and Mexican producers are not able to find lucrative clients outside of North America, they may have to settle for lower profit margins for their residual fuel oil exports to the US. On the US west coast, Trump's campaign promise to impose tariffs of up to 60pc on imports from China has already prompted some shippers to front-load container cargoes. Potential additional tariffs could slow container ship traffic from China to the US' busiest container ship ports — Los Angeles and Long Beach in California. There is a lot of uncertainty around the extent of Trump's tariff plans, as some analysts view his threats as aimed at generating leverage for negotiations. But provided that they are put into place, the Mexico and Canada tariffs could push US east and Gulf coast importers to purchase more residual fuel oil from other countries like Algeria, Colombia, Iraq, Kuwait, Nigeria, Peru and Saudi Arabia. An increase in Chinese tariffs could prompt US west coast importers to shift their purchases to other southeast Asian countries such as Vietnam, Indonesia, Malaysia and Thailand. But once the dust settles from the geographical reshuffling, new trading networks may have been established, and the US bunker market could settle into a new normal. By Stefka Wechsler US Gulf and east coasts residual fuel oil imports, Jan-Sep 2024 '000 b/d East coast % of all countries Gulf coast % of all countries Mexico 13.6 29% 36.1 74% Canada 7.4 16% 3.3 7% All countries 46.7 100% 48.9 100% — EIA US Gulf and east coast FO imports, Jan-Sep ’000 b/d Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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Viewpoint: US jet fuel demand to trail passenger growth

26/12/24

News

26/12/24

Viewpoint: US jet fuel demand to trail passenger growth

Houston, 26 December (Argus) — The upward trajectory of US jet fuel demand is likely to continue lagging the pace of rising passenger numbers because of recent capacity gains for multiple US airlines and the slow but steady improvement of aircraft fuel efficiency. More than 2.35mn travelers were screened weekly at US airports this year through the end of November, according to the US Transportation Security Administration (TSA) — a 6.2pc increase from the same 11-month period in 2019, before the Covid-19 pandemic curtailed domestic and international flights. Passenger screenings have exceeded 2019 levels consistently since the summer of 2023. Yet US jet fuel products supplied — a proxy for demand — remains stubbornly below pre-Covid-19 levels, despite the rise in traffic. Weekly jet fuel products supplied this year through 13 December was 1.66mn b/d, down by 6.5pc from daily demand in full-year 2019, according to US Energy Information Administration (EIA) data. This slower recovery in jet demand relative to rising passenger numbers may be driven by several factors, including airlines carrying more passengers than in the past, as well as steady improvements in aircraft fuel efficiency. More seats, more flyers Many US airlines have increased flying capacity, as measured by available seat miles (ASMs), since pre-pandemic levels, while load factor — the percentage of seats filled by passengers — has been stable to lower compared with 2019. United Airlines' 2024 third quarter ASMs were up by 14pc at 81.54bn compared with the same three months in 2019. United's load factor was down by 0.8 percentage points to 85.3pc in the same period. Rival US carriers American Airlines and Southwest Airlines similarly posted capacity increases of 14pc and 15pc, respectively, compared with the third quarter of 2019. American's load factor was unchanged at 86.6pc, while Southwest saw a decline of 2.3pc to 81.2pc. Airlines have also made fuel efficiency improvements in recent years. This is in part from the retirement of many older airplane models during the lean years of the pandemic, combined with delivery of newer, more efficient models in more recent years. Southwest Airlines' third quarter fuel efficiency improved by 1.5pc year-over-year, the company said in October. Southwest improved its fuel efficiency with the delivery of nine Boeing MAX 8 aircraft in the third quarter while retiring 15 older planes. The MAX 8's and MAX 9s have average fuel efficiencies of 96 and 101 seat miles per USG (sm/USG), respectively. That would make them 23pc and 30pc more efficient than older planes they may have replaced, such as the Boeing 737-800, with a 78 sm/USG. Other airlines are also refreshing their fleets with newer, more fuel-efficient planes. American Airline's mainline fleet at the end of the third quarter grew by 2.2pc from a year earlier to 971 aircraft. It took in 600 new aircraft from 2013 to 2023, including 31 new planes in 2023. United Airline's third-quarter fleet was similarly 3.4pc larger than a year earlier. But there are limits to this growing efficiency. Globally the average age of airline fleets has risen to 14.8 years, according data from the International Air Transport Association (Iata) — up from 13.6 years in 1990-2024. This is due largely to the steep dropoff in new plane deliveries as aircraft manufacturers struggled with supply chain issues and high costs from the pandemic. Boeing, a chief provider of planes for many US airlines, had a spate of production disruptions in 2024, including a multi-week strike this past fall, that slowed the delivery of newer aircraft. But even a trickle of newer models would gradually affect fuel efficiency, potentially continuing to hold gains in fuel consumption below the rate of passenger growth. By Jared Ainsworth Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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