Oil And Gas Sector Update - Ida: GRM, oil, gas/LNG prices up as capacity remains shut By ICICI Securities
Ida: GRM, oil, gas/LNG prices up as capacity remains shut
Two weeks after hurricane Ida made landfall in Louisiana, 6.9% of US oil output (15.1% at peak), 1.6% of gas output (3% at peak), 4% of refining capacity (13% at peak) and 5-9% (9-41% at peak) of petrochemical capacities are still shut. Oil is up 4% from lows last week due to likely US oil output fall in Sep’21 and modest OPEC+ output rise in Aug. Reuters’ Singapore GRM, which at peak was up 104% vs average levels on 23-26 Aug, is down 13% from peak.
The GRM recovery may not sustain. JKM spot LNG, Henry Hub, TTF and UK NBP are up 15-47% (US$1.3-6.8/mmbtu) at multi-year / all-time highs though other factors are at play, too. US spot PVC prices have touched historical highs while PE and PP prices are stable. Strength in gas/LNG is positive for ONGC, OIL and GAIL, but negative for GGL.
* 1.6% of US gas, 4% of refining, 6.9% of oil, and 5-9% of petrochemical capacity still shut: As of 13-Sep: 1) 0.79m b/d or 6.9% of US oil output was still shut vs 1.74m b/d or 15.1% of US output at peak; 2) 1.15bcf/d or 1.6% of US gas (51.6% of GoM) output is still shut vs 2.11bcf/d or ~3% of US (94.5% of GoM) output at peak; 3) 0.7m b/d or 4% of US refining capacity is still shut vs 2.3m b/d or 13% of US refining capacity at peak, and 5) 3.5mmtpa or 9% of ethylene (16% at peak), 1.5mmtpa or 6% (21% at peak) of PE and 0.4mmtpa or 5% (9% at peak) of PP capacities in US are still shut. 41% of US PVC capacity shut by Ida has restarted but VCM, EDC and gases shortage has capped utilisation; another 28% is shut due to other reasons.
* US output fall in Sep & lower OPEC+ output rise than expected in Aug support oil: 6.9% of US oil output is still shut vs 4% of refining capacity. Oil is up 4% from 7- Sep’21 lows as 1) EIA now expects Gulf of Mexico (GoM) and total US output to be down 0.32-0.31m b/d MoM in Sep’21 and 2) OPEC+ output rise in Aug’21 was just 50k b/d vs expected 400k b/d as Kazakhstan and Nigeria output declined.
* Gas & LNG up 15-47%; positive for ONGC, OIL and GAIL, but negative for GGL: HH and JKM spot LNG prices are up 34-15% (US$1.3-2.5/mmbtu) to US$5.2- 18.82/mmbtu while UK NBP and Dutch TTF gas prices are up 45-47% (US$6.6- 6.8/mmbtu) to US$21.22-21.23/mmbtu. US/European gas and spot LNG prices were at all-time/multi-year high even before Ida. Low gas supply from Norway and Russia, supply issues at LNG plants and low European gas storage boosted gas price. High gas/LNG prices would boost FY23E deepwater and APM gas price of ONGC and OIL, GAIL’s FY22E-FY23E gas marketing EBITDA, but hit GGL’s FY22E margin.
* GRM up 78%; may not sustain: Singapore GRM was up 104% to US$5.55/bbl on 8-Sep, and on 13-Sep up 78% to US$4.84/bbl vs 23-26 Aug average of US$2.7/bbl. Rise vs average cracks in 23-26 Aug’21 is as follows: 1) fuel oil by US$4.1/bbl; 2) diesel by US$2.5/bbl to US$6.1/bbl; 3) naphtha by US$1.9/bbl; 4) jet fuel by US$1.9/bbl; and 5) petrol by US$0.8/bbl to US$11/bbl. As refineries restart, GRMs are likely to fall. Recovery in global demand for refined products is key to outlook.
* Spot PVC prices surge: US spot PVC prices touched new highs as shutdowns are large, but PE and PP were stable given already high prices and smaller shutdowns.
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