Saudi Arabia’s decision to reduce crude production to help OPEC manage inventory

Saudi Arabia’s decision to reduce crude production to help OPEC manage inventory

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Refinery margins remain under pressure:

In a major sign of demand recovery, OPEC has reported increased user rates for refineries across the globe. US refinery use rates have increased in December 2020 to ~79.14%. In Europe, the average refinery user rate was at 65.32%. In Asia refinery use rates increased, averaging 89.83% in December.

Despite that, the improved refining usage, margin outlook remains challenging in the near term. Many refineries are still shut in light of weak demand. There is an anticipation that more closures will be needed if margins fail to improve.

Recovery in LNG prices:

LNG prices, on the other hand, have recovered sharply. Spot LNG prices by December end had recovered from $1.8/mmbtu in 2020 and finished the year at $14.6/mmbtu. The rally was owing to the increased demand while supply remained low. However, the market is now getting tight and demand is expected to remain subdued. It will be interesting to see how it affects prices.

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