WEEKLY ENERGY RECAP: Oil price fights infection

China will be able to soften the crude oil demand hit from coronavirus after the government reported the lowest number of new cases. (AP/File)
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Updated 23 February 2020

WEEKLY ENERGY RECAP: Oil price fights infection

  • Of greater concern is the big drop in demand for oil in China — especially from Russia

Crude oil prices recorded their second weekly gain despite the pall of coronavirus hanging over commodity markets. 

Brent crude advanced to $58.50 per barrel and WTI rose to $53.46 per barrel on optimism that China will be able to soften the crude oil demand hit from coronavirus after the government reported the lowest number of new cases.

Nevertheless, oil has lost about 15 percent since the beginning of the year on fears that the outbreak will squeeze global energy demand.  Now the market is wondering if it is possible for the Brent price to break the $60 barrier before OPEC’s much anticipated meeting in early March.

While supply disruptions in Libya continue to affect the market, analysts have grown somewhat weary with their impact.

Of greater concern is the big drop in demand for oil in China — especially from Russia, where the spot price for Russian East Siberia Pacific Ocean crude (ESPO) has weakened further.

Lower Chinese refinery demand has caused floating storage to accumulate offshore in China where most of these idling (anchoring) very large crude carriers have been loaded with March barrels and not yet with April deliveries. 

The market has also started to see the impact on lower refining margins in Asia and Europe.

This is largely as a result of lower demand for petroleum refined products — especially for the Jet fuel which has been affected by global flight restrictions related to coronavirus.

Jet fuel prices are now expected to fall to near-record lows. 

Lower demand for petroleum-refined products in China has led Beijing to cut gasoline and diesel retail prices for the second time in 2020. 

This reflects China crude oil demand, which has fallen by about a third.

The US Energy Information Administration (EIA) lowered its outlook for crude oil demand growth.

That took into account not only coronavirus but also lower-than-expected heating fuel consumption caused by the Northern Hemisphere’s warmer winter.

Pakistan seeks explanation from oil marketing companies amid looming fuel crisis

Updated 03 June 2020

Pakistan seeks explanation from oil marketing companies amid looming fuel crisis

  • Shell Pakistan, Total-Parco, and Attock Petroleum given show cause notices on failing to maintain stocks — OGRA
  • Retailers say about 40 percent fuel supply was disrupted after the government slashed prices of petroleum products

KARACHI: Pakistan’s Oil and Gas Regulatory Authority (OGRA) on Wednesday sought an explanation from three oil marketing companies for failing to maintain their reserves as consumers continued to suffer due to a shortage of gasoline across the country after the government decided to ease lockdown restrictions.
“We have taken notice of the situation and engaged a third party to probe the situation. We have also issued show cause notices wherever we felt the stocks were not properly available,” OGRA’s senior executive director Imran Ghaznavi told Arab News, adding: “We have issued notices to Shell, Total-Parco, and Attock Petroleum.”
According to a statement released by the Ministry of Finance, the country’s Economic Coordination Committee (ECC) also discussed the shortage of petrol in some cities on Wednesday and instructed the Ministry of Energy, Competition Commission of Pakistan and OGRA to ensure that the requisite stocks were maintained by oil marketing companies and the supply to the fuel stations across the country remained regular and intact throughout the month.
The ECC chairman, Dr. Abdul Hafeez Shaikh, took a stern view of the reported petrol shortage, directing all the relevant government institutions to immediately let him know if the situation worsened any further.
Pakistan’s petroleum consumers suffered this week as many petrol station stopped supplying fuel while others faced panic buying and long queues. Retailers say about 40 percent of the supply was disrupted after the prices of fuel were slashed by the government.
“Around 40 percent petrol stations are not supplying fuel to the consumers and this situation is persisting across the country,” Sameer Najmul Hasan, chairman of All Pakistan Petrol Retailers’ Association, told Arab News.
The situation emerged when the country’s oil marketing companies failed to maintain their required stocks for 20 days under a local law.
Retailers say the demand for petrol and diesel surged after the government announced to relax the COVID-19 lockdown and allowed public transportation to resume after almost two months of suspension.
“The oil marketing companies mostly keep stocks of petrol and diesel through imports and keep inventories toward the lower side. As the lockdown was eased and public transportation was resumed, the demand for fuel surged in the country,” Hasan noted.
Goods transporters said they were also facing problem due to the shortage of diesel, warning that the situation could have larger implications for the country’s economy if it was not duly addressed.
“We are trying to manage at present, mostly by relying on stations owned and operated by small companies, but the surge in demand is depleting the stocks and the situation is getting out of hand,” Rana Aslam, president of Karachi Goods Carrier, told Arab News.
Transporters warn that the supply of essential goods across the country will also be suspended if the situation is not properly handled.
“When oil prices are increased, the orders are immediately implemented,” Aslam added. “But when these prices are dropped, people are deprived of the benefits. The situation may also hamper the supply of essential items across the country amid the COVID-19 pandemic.”
The fuel shortage emerged despite the assurances of the petroleum division that the country had sufficient stocks of gasoline to meet the domestic requirement
OGRA officials said the oil marketing companies were legally bound to respond to the government’s call to maintain sufficient stocks of petroleum products to avoid any emergency situation. The matter is also expected to be taken up in a high level meeting on Thursday.
“A meeting is taking place tomorrow at the petroleum division and the matter will be taken up in that meeting,” Ghaznavi informed, adding: “The companies are legally obliged to overcome this shortage forthwith.”
Pakistan’s average monthly consumption of petrol before the coronavirus pandemic remained between 500,000 metric tons and 600,000 metric tons. However, the level of consumption and demand declined due to the COVID-19 outbreak. The imports of petroleum products also declined by 20 percent to $9.5 billion during July-April 2019-20 mainly due to virus-related lockdown.
Pakistan’s annual consumption of petroleum was around 19.35 million metric tons in FY19. Around 42 percent of the country’s demand was met through imported products while the remaining 58 percent was locally refined, according to the country’s credit rating agency, PACRA.