Oil & Petrochemicals Monthly

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Aramco raises feedstock prices in November; impact is likely to be seen in Q4-19 margins amidst continued decline in end-product prices.

• Naphtha, propane, and butane continue the rally: The prices of naphtha slightly rose 5.7% to USD 555/ ton, while those of propane and butane increased by 2.4% and 2.3% respectively to USD 430/ton and USD 445/

ton in November. Aramco further increased propane and butane prices for December to USD 440 and USD 455 per ton, respectively.

• Basic and end products continue the fall; intermediate prices witness recovery: PP prices fell 5.9% M/M to USD 955 per ton in November.

Propylene prices dropped 11.1% M/M to USD 800 per ton. HDPE prices declined 6.9% to USD 810 per ton, and LDPE prices decreased 5.5% to USD 860 per ton. Polystyrene prices fell by 4.6% to USD 1,040 per ton in November, in-line with the 3.5% drop in styrene prices to USD 820 per ton. Meanwhile, PVC prices fell 2.4% to USD 815 per ton. MEG (Asia) prices dropped 0.9% to USD 540 per ton in November. Ethylene prices rose 22.2% M/M to USD 770 per ton. Methanol-China prices declined 8.7% to USD 210 per ton. Titanium dioxide’s weighted average price fell marginally by 0.8% M/M to USD 3,171 per ton. Ammonia prices rose 2.1%

to USD 245 per ton, while urea prices dropped 6.0% to USD 235 per ton in November. DAP prices fell 4.6% M/M to USD 310 per ton in November.

Oil prices increased 11.6% since October

• Potential OPEC+ production cut keeps oil prices up during December:

Oil prices increased in the initial week of November as traders weighed conflicting reports on development toward phase one of US-China trade deal which shifted sentiment tied to energy demand. Oil prices continued to increase in the first half of the month on reports that trade negotiations between the US and China were in the final stages. The uptrend continued during the month on suggestions that OPEC+ production cut could continue until March 2020 with additional production cut of 500,000 bpd. However, Russian Energy Minister Alexander Novak stated that he would like OPEC and its non-OPEC allies to band under a partnership called OPEC+, and take a decision closer to April on extension of oil output deal.

• Brent-WTI edge higher: Brent prices rose 0.7% M/M, while WTI prices fell 2.6% M/M, ending at USD 62.4 and USD 55.2 per barrel, respectively. The Brent-WTI spread contracted to nearly USD 7.3 per barrel in November from USD 5.4 per barrel in October. Natural gas prices at Henry Hub fell 0.8% M/M to USD 2.3 per million British thermal units (mmBtu).

• EIA retains US crude production estimates: In its latest Short-Term Energy Outlook, the EIA estimated output in the US to average 12.3 mbpd in FY19 and 13.2 mbpd in FY20.

• OPEC oil production dips in November: According to the Monthly Oil Market Report (MOMR), OPEC’s oil production decreased to 29.55 mbpd in November. The OECD’s commercial inventories fell 5.1mn barrels, with a forward cover of 61.2 days.

Table 1: Petchem Prices – November FY19

Name Price

(USD pet ton) M/M % YTD %

Naphtha 555 5.7% 19.4%

Saudi Propane 430 2.4% -3.4%

Butane-Saudi 445 2.3% 7.2%

Ethylene 770 22.2% -11.5%

Propylene-Asia 800 -11.1% -11.1%

HDPE 810 -6.9% -25.3%

LDPE 860 -5.5% -16.5%

LLDPE 790 -7.1% -22.5%

PP-Asia 955 -5.9% -10.7%

Styrene-Asia 820 -3.5% -11.4%

Polystyrene-Asia 1,040 -4.6% -15.8%

Tio2* 3,171 -0.8% -3.4%

PVC-Asia 815 -2.4% -7.9%

MEG (Asia) 540 -0.9% -15.0%

Methanol-China 210 -8.7% -19.2%

DAP-Gulf 310 -4.6% -24.4%

Urea-Gulf 235 -6.0% -16.1%

Ammonia-Gulf 245 2.1% -19.7%

MTBE-Asia 725 0.7% 39.4%

EDC 250 0.0% -38.3%

Butyl-A 1,110 -6.3% -22.6%

BPA 1,130 -2.6% -18.1%

Acetic Acid-AA 400 -8.0% -26.6%

EVA 1,465 -1.7% -1.3%

Vinyl Acetate Monomer-VAM 860 -2.8% -20.0%

Source: Argaam, Reuters Eikon, AlJazira Capital Research

*The weighted average price of Tio2

Table 2: Economic Calendar

Date Country Event

Dec 04,11,18,26 US Weekly Petroleum Status Report 20-Dec US GDP Annualized QoQ

21-Dec to 28-Dec KSA CPI YoY

25-Dec to 07-Jan KSA GDP Constant Prices YoY 26-Dec US Initial Jobless Claims 29-Dec KSA Current Account Balance 29-Dec KSA M1, M2, M3 Money Supply YoY 29-Dec KSA SAMA Net Foreign Assets SAR 5-Jan KSA IHS Markit Saudi Arabia PMI

7-Jan US Trade Balance

10-Jan US Unemployment Rate

14-Jan EIA Short-term Energy Outlook 15-Jan OPEC Monthly Oil Market Report 14-Jan US Monthly Budget Statement 16-Jan IEA Oil Market Report

Source: Bloomberg, IEA, EIA, OPEC

Senior Analyst Jassim Al-Jubran +966 11 2256248

[email protected]

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IEA – Oil Market Report (Published on December 12)

• Global demand growth forecasts for FY19 and FY20 are unchanged, at 1.0 mb/d and 1.2 mb/d, respectively. Global oil demand in Q3- 19 increased by 900 kbpd Y/Y, the strongest annual growth in a year.

• The global oil supply was steady in November at 101.4 mbpd, a decline of 1.2 mbpd Y/Y. OPEC+ countries also agreed to deepen existing cuts to 2.1 mbpd in Q1-20 due to potential oversupply in early 2020.

• In Q4-19, global refining throughput is expected to remain flat due to labour strikes in several countries in November. In FY20, the refining throughput estimate is revised down to 1 mbpd, after a 0.2 mbpd decline in FY19.

• OECD commercial stocks drew 32.5 mn barrels in October to 2 904 mn barrels and stood at 2.9 mb below the five-year average.

Stocks in terms of days of forward demand declined to 60.6 days, which is one day below the average.

OPEC – Monthly Oil Market Report (Published on December 11)

• Oil consumption is expected to increase 0.98 mbpd in FY19 (unchanged from the previous month’s estimate). In FY20, demand is forecast to rise 1.08 mbpd, in line with last month’s projections.

• OPEC’s oil production declined 193 tbpd M/M to average 29.55 mbpd in November, according to secondary sources.

• Non-OPEC supplies growth are forecast to reach a level of 1.82 mbpd (unchanged from the previous month’s estimate).

• OECD’s commercial oil stocks fell 5.1 mn barrels M/M to 2,933 mn barrels in October, 32.8 mn barrels above the latest five-year average with a forward cover of 61.2 days.

• Demand for OPEC crude is estimated at 30.7 mbpd in FY19 (unchanged from the previous report).

EIA – Short-Term Energy Outlook (Published on December 10)

• EIA forecasts Brent spot prices will average USD 61/b in FY20, down from a FY19 average of USD 64/b, because of forecast rising global oil inventories, particularly in H1-20.

• Henry Hub’s natural gas spot prices averaged USD 2.64/mmBtu in November, up 31 cents from October. EIA forecasts the spot prices to average USD 2.45/mmBtu in FY20.

• As of November 30, natural gas inventories in the US stood at 3,616 bn cubic feet, which is about equal to the five-year average and 19% higher than a year ago.

• US crude production will average 13.2 mbpd in FY20 (up 0.9 mbpd from the FY19 level).

• Global consumption of petroleum and other liquid fuels is projected to grow by 0.74 mbpd in FY19 (down 0.01 mbpd from the previous month’s estimate) and 1.43 mbpd in FY20 (up 0.06 mbpd from the prior month’s estimate).

• Non-OPEC production is projected to increase by 2.07 mbpd in FY19 and 2.33 mbpd in FY20.

• On average, OPEC members produced 37.3 mbpd of crude in FY18. They are estimated to produce 35.2 mbpd in FY19 (unchanged from the previous month’s estimate) and 34.4 mbpd in FY20 (down 0.2 mbpd from the previous month’s estimate).

• OPEC’s unplanned oil supply disruptions averaged 2.69 mbpd in November (up 0.10 mbpd from October).

• OECD inventories are projected to increase to 2.9bn barrels by end-2019 (unchanged from the previous month’s estimate) and to 2.9bn barrels in FY20 (unchanged from the previous month’s estimate).

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Figure 1: US Oil Production versus Rig Count

Source: US EIA, AlJazira Capital Research

Rig count US oil production (RHS)

7 9 11 13

0 400 800 1,200 1,600 2,000

Jan-14 Jul-14 Jan-15 Aug-15 Feb-16 Sep-16 Mar-17 Oct-17 Apr-18 Oct-18 May-19 Nov-19

Table 3: World Oil Demand and Supply

(mbpd) FY18 FY19E FY18 FY19E FY20E

World Crude Oil & Liq. Fuels Supply Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

OPEC Supp. 37.46 37.07 37.38 37.36 36.05 35.50 34.55 34.82 37.32 35.23 34.35 Non-OPEC Suppl. 61.94 62.82 64.23 65.14 64.44 65.01 65.78 67.17 63.54 65.60 67.94 Total World Supply 99.39 99.89 101.61 102.50 100.49 100.51 100.33 101.99 100.86 100.83 102.29 World Crude Oil & Liq. Fuels Cons.

OECD Cons. 47.79 47.06 48.06 47.56 47.25 46.62 47.85 48.10 47.62 47.46 47.62 Non-OECD Cons. 51.52 52.59 52.51 52.79 52.57 53.45 53.54 53.51 52.36 53.27 54.50 Total World Cons. 99.31 99.65 100.57 100.35 99.82 100.08 101.32 101.62 99.97 100.72 102.14 OECD Comm. Inventory (mn barrels) 2,803 2,800 2,852 2,860 2,867 2,924 2,952 2,932 2,860 2,932 2,971 OPEC Surplus Crude Oil Prod. Cap. 1.86 1.78 1.34 1.00 2.08 2.19 1.95 1.65 1.49 1.97 2.11

Source: EIA STEO November 2019, AlJazira Capital Research

• The gap between crude consumption and supply expanded to 0.99 mbpd in Q3-19 (higher consumption than supply).

• OECD’s crude inventories stood at 2.95 bn barrels in Q3-19.

• OPEC’s surplus production capacity is expected to decline to 1.65 mbpd in Q4-19 from 1.95 mbpd in Q3-19.

US oil production averaged 12.88 mbpd in November 2019.

Production increased 1.0% M/M in November from 12.75 mbpd, rising 7.3% Y/Y from 12.00 mbpd in November 2018.

In the week ended December 20, the rotary rig count in the US stood at 810 (up 14 W/W). The average number of rigs fell 3.6%

in November vis-à-vis a drop of 3.4% in October. The rig count was down 25.5% Y/Y in November. Of the total number of rigs on December 20, 685 (up 18 W/W) were used to drill for oil and 125 (down 4 W/W) for natural gas. In the US, oil exploration dropped 23.6% Y/Y, while gas exploration plunged 34.8% Y/Y.

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Figure 5: World Oil Production and consumption Figure 6: US Weekly Natural Gas Storage Figure 3: US Weekly Oil Inventories Figure 4: OECD Monthly Oil Inventories

Source: US EIA, AlJazira Capital Research Source: US EIA, AlJazira Capital Research

mn bbls

528

448

300 350 400 450 500 550

Jan-14 Apr-14 Jul-14 Nov-14 Feb-15 Jun-15 Sep-15 Dec-15 Apr-16 Jul-16 Oct-16 Feb-17 May-17 Sep-17 Dec-17 Mar-18 Jul-18 Oct-18 Jan-19 May-19 Aug-19 Dec-19 mbpd

2,500 2,600 2,700 2,800 2,900 3,000 3,100 3,200

Jan-14 Oct-14 Jul-15 Apr-16 Jan-17 Oct-17 Jul-18 Apr-19 Jan-20 Oct-20

mbpd

90 95 100 105

Jan-14 May-14 Oct-14 Mar-15 Aug-15 Jan-16 Jun-16 Oct-16 Mar-17 Aug-17 Jan-18 Jun-18 Oct-18 Mar-19 Aug-19 Jan-20 Jun-20 Nov-20

1,000 1,500 2,000 2,500 3,000 3,500 4,000

Nov-17 Feb-18 May-18 Sep-18 Dec-18 Apr-19 Jul-19 Nov-19

Prod. (‘000bpd) Cap. Aug Sep Oct Nov % M/M Equatorial Guinea 150 120 120 120 120 Chg.0.0%

Gabon 220 200 190 200 180 -10.0%

Republic of Congo 330 330 320 330 310 -6.1%

Ecuador 555 530 540 470 520 10.6%

Venezuela 900 760 680 690 700 1.4%

Algeria 1,080 1,020 1,030 1020 1020 0.0%

Libya 1,300 1,070 1,120 1,180 1,150 -2.5%

Angola 1,450 1,400 1,360 1,340 1,280 -4.5%

Nigeria 2,000 1,950 1,930 1,910 1,890 -1.0%

Iran 3,830 2,210 2,130 2,110 2,070 -1.9%

Kuwait 3,075 2,640 2,690 2,670 2,670 0.0%

U.A.E. 3,400 3,070 3,070 3,070 3,070 0.0%

Iraq 4,800 4,780 4,780 4,680 4,710 0.6%

Saudi Arabia 11,500 9,830 8,360 10,020 10,010 -0.1%

Total OPEC 34,590 29,910 28,320 29,810 29,700 -0.4%

Source: Bloomberg

('000 bpd) Equatorial Guinea

Republic of Congo

0 1,500 3,000 4,500 6,000 7,500 9,000 10,500 Gabon

Ecuador Venezuela Algeria Libya Angola Nigeria Iran Kuwait U.A.E.

Iraq Saudi Arabia

Source: Bloomberg

• World oil production forecasts for FY19 stood at 100.83 mbpd, while those for FY20 declined to 102.29 mbpd.

• US weekly oil inventories rose 0.2% W/W to 447.9 mbpd for the week ended December 06, while they increased 1.9%

M/M to 447.1 mbpd in November 2019.

• US weekly natural gas storage declined 2.0% W/W to 3,518 bcf in the week ended December 06, after decreasing 2.8%

M/M in November.

• OECD oil inventories are projected to reach 2,932 mn barrels at the end of FY19 and increase to 2,971 mn barrels by the end of FY20.

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Brent WTI ORB

20 30 40 50 60 70 80 90

Nov-15 Mar-16 Jul-16 Dec-16 Apr-17 Aug-17 Jan-18 May-18 Oct-18 Feb-19 Jun-19 Nov-19

Naphtha Propane -Saudi Butane-Saudi Naphtha: H -980; L - 310

Propane: H -1010; L - 280 Butane: H -1020; L - 290

1,010 1,100

200 290 380 470 560 650 740 830 920 1,010 1,100

Jan-14 Aug-14 Apr-15 Dec-15 Aug-16 Apr-17 Nov-17 Jul-18 Mar-19 Nov-19

HDPE LDPE LLDPE

700 900 1,100 1,300 1,500 1,700 1,900

4.6

1.50 1.7 2.00 2.50 3.00 3.50 4.00 4.50 5.00

Mar-15 Jul-15 Oct-15 Jan-16 May-16 Aug-16 Nov-16 Mar-17 Jun-17 Oct-17 Jan-18 Apr-18 Aug-18 Nov-18 Mar-19 Jun-19 Sep-19

Ethylene Propylene-Asia Styrene-Asia 400

600 800 1,000 1,200 1,400 1,600 1,800

Jan-14 May-14 Oct-14 Mar-15 Jul-15 Dec-15 May-16 Sep-16 Feb-17 Jul-17 Nov-17 Apr-18 Sep-18 Jan-19 Jun-19 Nov-19

MEG (Asia) VAM

MEG: H -1030; L - 525 VAM: H -1550; L - 725

500 700 900 1,100 1,300 1,500 1,700

Figure 7: Oil and Gas Price Trends (USD per Barrel)

Figure 9: Feedstock Price Trends (USD per Ton)

Figure 11: End Products Price Trends (USD per Ton)

Figure 8: Henry Hub Natural Gas (USD per MMBTu)

Figure 10: Basic Petrochemicals Price Trends (USD per Ton)

Figure 12: Intermediate Products Price Trends (USD per Ton)

Source: OPEC, AlJazira Capital Research

Source: Argaam, AlJazira Capital Research

Source: Argaam, AlJazira Capital Research Source: Reuters Eikon, AlJazira Capital Research

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200 150

200 250 300 350 400 450 500 550

3,640

2,645 2,500

2,700 2,900 3,100 3,300 3,500 3,700

Figure 15: Methanol-China (USD per Ton) Figure 16: TiO2 US

Source: Argaam, AlJazira Capital Research Source: Argaam, AlJazira Capital Research

PP-Asia Polystyrene-Asia 1,560

700 825 900 1,100 1,300 1,500 1,700 1,900

Ammonia-Gulf Urea-Gulf DAP-Gulf

UREA:H- 395; L- 180 Ammonia: H- 620; L- 150 DAP: H- 490; L- 295 615

- 295 100 200 300 400 500 600 700

Petchem Spreads

• Naphtha prices averaged USD 530 per ton in November, up from USD 518 per ton in October. Polypropylene average prices fell to USD 969 per ton in November from USD 1,020 per ton in October.

• The HDPE-naphtha spread narrowed to USD 308 per ton in November as against USD 383 per ton in October. The PP-naphtha spread contracted to USD 439 per ton from USD 503 per ton during this period.

• The HDPE-ethylene spread decreased to USD 115 per ton in November from USD 215 per ton in October.

• The PP-propane spread contracted to USD 539 per ton, while the PP-butane spread decreased to USD 524 per ton in November.

• The polystyrene-benzene spread decreased to USD 416 per ton in November from USD 459 per ton in October.

• The PVC-EDC spread contracted to USD 583 per ton in November from USD 603 per ton in October.

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7

300 400 500 600 700 800 900

Jan-14 Jun-14 Nov-14 Apr-15 Sep-15 Feb-16 Jul-16 Dec-16 May-17 Oct-17 Mar-18 Aug-18 Jan-19 Jun-19 Nov-19

255

300 400 500 600 700 800 900

365 880

PP-Naphtha

785

380 400 430 480 530 580 630 680 730 780

PVC-EDC

735

350 395 400 450 500 550 600 650 700 750

Jan-14 Jun-14 Oct-14 Mar-15 Aug-15 Dec-15 May-16 Oct-16 Feb-17 Jul-17 Dec-17 Apr-18 Sep-18 Feb-19 Jun-19 Nov-19

Figure 17: HDPE-Naphtha

Figure 19: PP-Propane (Saudi)

Figure 18: PP-Naphtha

Figure 20: PVC-EDC

775

290 250

350 450 550 650 750 850

195 380

-200 -100 0 100 200 300 400

Figure 21: Polystyrene-Benzene Figure 22: HDPE-Ethylene

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Table 5: Petchem Price Performance

Name Price ^* (USD per ton) M/M % Chg. Q/Q % Chg. Y/Y % Chg. YTD % Chg.

Naphtha 555 5.7% 18.1% 13.3% 19.4%

Saudi Propane 430 2.4% 16.2% -20.4% -3.4%

Butane-Saudi 445 2.3% 23.6% -15.2% 7.2%

Ethylene 770 22.2% -7.2% -21.4% -11.5%

Propylene-Asia 800 -11.1% -13.0% -5.3% -11.1%

HDPE 810 -6.9% -15.6% -28.9% -25.3%

LDPE 860 -5.5% -10.4% -16.5% -16.5%

LLDPE 790 -7.1% -9.7% -23.3% -22.5%

PP-Asia 955 -5.9% -7.3% -17.0% -10.7%

Styrene-Asia 820 -3.5% -16.8% -15.5% -11.4%

Polystyrene-Asia 1,040 -4.6% -7.1% -16.8% -15.8%

Tio2* 3,171 -0.8% -0.2% -3.7% -3.4%

PVC-Asia 815 -2.4% -7.9% -5.2% -7.9%

MEG (Asia) 540 -0.9% 0.0% -20.6% -15.0%

Methanol-China 210 -8.7% -6.7% -27.6% -19.2%

DAP-Gulf 310 -4.6% -10.1% -23.5% -24.4%

Urea-Gulf 235 -6.0% -9.6% -26.6% -16.1%

Ammonia-Gulf 245 2.1% 22.5% -25.8% -19.7%

MTBE-Asia 725 0.7% 0.7% 16.9% 39.4%

EDC 250 0.0% -16.7% -35.9% -38.3%

Butyl-A 1,110 -6.3% -12.9% -26.7% -22.6%

BPA 1,130 -2.6% 2.7% -23.6% -18.1%

Acetic Acid-AA 400 -8.0% -14.9% -34.4% -26.6%

EVA 1,465 -1.7% 4.6% -2.3% -1.3%

Vinyl Acetate Monomer-VAM 860 -2.8% -3.9% -27.7% -20.0%

Note: Prices as of November 24, 2019 *the weighted average price of Tio2

Table 6: Petrochemical Products by Saudi Petrochemical Companies

Company Finished Products

SABIC Polyethylene, polypropylene, poly styrene, ethylene glycol (MEG), methyl tert-butyl ether (MTBE), benzene, urea, ammonia, PVC, and PTA

SAFCO Urea, ammonia

YANSAB Polyethylene, polypropylene, MEG, MTBE, and benzene Tasnee Polyethylene, polypropylene, and propylene (TiO2)

Saudi Kayan Polyethylene, polypropylene, MEG, polycarbonate, and bisphenol A

Petro Rabigh Polyethylene, polypropylene, propylene oxide, and refined petroleum products Petrochem Polyethylene, polypropylene, and polystyrene

Sahara Petrochemicals (Sipchem) Polyethylene, polypropylene, Methanol, butanol, acetic acid, and vinyl acetate monomer Saudi Group Styrene, benzene, cyclohexene, and propylene

Advanced Polypropylene

Alujain Polypropylene

CHEMANOL Formaldehyde – improvers concrete

NAMA Epoxy resin, hydrochloric acid, liquid caustic soda, and soda granule

MAADEN Ammonia and DAP

Source: Argaam Plus

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