U.S. energy companies increased the number of oil rigs they operated this year for the first time this week, but the number of rigs dropped the most in January since April 2016. With the Permian boom in the largest shale oil formation in the United States, oil production has cooled down.

Energy services company Baker Hughes said in a report released on Friday that in the week ending January 25, energy companies added 10 oil rigs, bringing the total number to 862.

More than half of the oil rigs in the United States are located in the Permian basin, the country’s largest shale oil formation. The number of existing rigs in the region increased by three to 484 this week, far below the 493 that reached their four-year high in November last year.

Energy companies cut 23 oil rigs this month, the largest number of cuts since April 2016. Over the past two months, they added 12 in November and cut two oil rigs in December.

The number of oil rigs in the U.S. is an early indicator of future production, and this year is higher than a year ago (759 rigs were active last year), because energy companies are investing more money to get higher prices.

However, in 2019, energy companies said they planned to cut drilling rigs, partly because crude oil prices were expected to be lower than last year.

According to the U.S. Energy Information Agency (EIA) forecast this week, oil production in seven major shale formations in the United States is expected to rise to a record 8.2 million barrels a day in February. But EIA expects the Permian production growth in February to be the smallest month since May 2018, when production declined slightly.

In recent months, because of the sharp drop in oil prices, oil production has surged, exceeding pipeline transportation capacity, which has made the oil reserves in the region in trouble, and the Permian oil production has been under pressure.

According to John Kemp, a Reuters columnist, the U.S. shale boom will cool down this year, and a fall in prices later last year (which usually takes three to four months to affect drilling) is likely to slow production growth in the second half of 2019.

According to Baker Hughes, there are 1059 active oil and gas rigs in the United States this week. Most rigs produce oil and gas at the same time.

On January 27, the fluorite commodity index was 123.51, which was the same as yesterday. It was 3.12% lower than the cyclical peak of 127.49 points (2019-01-03), and 150.99% higher than the lowest point of 49.21 on December 18, 2016. (Note: Period refers to 2011-09-01 to date)

According to statistics, the recent domestic fluorite price trend has been slightly lower, the average domestic fluorite price as of 28 days is 3510 yuan/ton. Due to the impact of strict environmental protection inspection, some domestic fluorite plants have been shut down in the near future, while the supply of fluorite in the field has been relatively reduced, but the recent downstream market is not good, and the price of fluorite market has slightly declined. In addition to the low temperature, the low start-up rate of fluorite flotation units in the North has aggravated the shortage of domestic fluorite supply. In the southern fluorite market, the start-up of devices has also been reduced, and the supply of fluorite in the field is tight, but the downstream terminal receipt is not active, resulting in a slight drop in market prices. As of the 28th, the price of 97 fluorite wet powder in Inner Mongolia was 3200-3600 yuan/ton, the mainstream of 97 fluorite wet powder negotiations in Fujian was 3400-3700 yuan/ton, the price of 97 fluorite wet powder in Henan was 3300-3600 yuan/ton, and the price of 97 fluorite wet powder in Jiangxi was 3200-3600 yuan/ton.

The market price of hydrofluoric acid in downstream fluorite has declined. The domestic market price of hydrofluoric acid was 12416.67 yuan/ton as of 28 days, and the market price of hydrofluoric acid has slightly declined. In addition, the upstream refrigerant products have more maintenance devices, the demand for upstream fluorite and hydrofluoric acid has weakened, the recent downstream refrigerant trading market has declined, and the price of hydrofluoric acid products has slightly declined. Recent market of refrigerant in downstream terminal market has been cool, with R22 refrigerant facility starting at 70%, R22 refrigerant facility starting rate declining, bulk water outlet quotation of main production enterprises declining to 1700-18000 yuan/ton, but there is no bulk water spot in the production enterprises, mainly a small amount of cylinders shipped. In addition, the actual demand side of the market has declined, and the shipment market trend is poor. The domestic market price of R134a is slightly lower, the start-up rate of production enterprises is lower, the market demand for refrigerants is weakened, and manufacturers mainly export their products. However, the on-site transaction price does not change much, and the merchants purchase on demand. Recently, due to the impact of equipment maintenance, the upstream market demand for hydrofluoric acid has weakened. Generally speaking, there are many downstream negative factors, but because of the poor start-up of fluorite market devices and the high price of fluorite, Business Analyst Chen Ling believes that the price of fluorite market may be slightly lower due to the weakening downstream demand.

Premier Oil’s second assessment well in the Zama project off the coast of Mexico has shown more oil potential, raising hopes of finding large oil fields.

Premier shares a 25% stake in the area with Taros Energy and Sierra Oil and Gas, and its share price rose more than 4% in early trading.

The company said that the total net percentage of rock representing the amount of oil and gas that can be stored reached 73%, which is higher than pre-drilling estimates and 63% higher than its first evaluation well.

Chief Executive Tony Durrant said: “This is a good start for the Zama Block 7 evaluation project in Mexico. It enhances our interpretation of Zama’s large discoveries and our confidence in resource estimates.

Premier said the reservoir quality was similar to Zama1 and met expectations.

David Round, an analyst at BMO Capital Markets, said the results were positive and he expected it would “boost confidence in Zama’s trading volume forecasts.”

However, the company said it had found no oil in a deeper exploration prospect called Marte.

Premier said it would now drill another well based on the original well of Zama-2 evaluation well, which was deepened to assess the high-risk Marte exploration prospects.

Taros Energy said Wednesday that the initial phase of the assessment plan was completed about 28 days ahead of schedule, which is 25% cheaper than the original plan.

As soon as 2019, the polyethylene (PE) market has fallen into a slump. Last week, HDPE market reference price was 9783 yuan (ton price, the same below), down 1.01% from the beginning of the month; LDPE market reference price was 9062.5 yuan, down 0.82% from the beginning of the month.

Industry insiders generally believe that in the expectation of a slowdown in macroeconomic growth and a looser supply-demand relationship for PE, the trend of PE market this year is not optimistic.

Weak support for oil prices

There is a strong positive correlation between PE price trend and international oil price. At present, the global macroeconomic expectations are generally low, the international crude oil market is vulnerable to shocks, making PE cost support weak.

“This year, people in the industry generally hold a more pessimistic attitude towards the global macro-economy. With the slowdown of economic growth in the United States, the expectation of economic downturn continues to magnify, and the economic slowdown in emerging countries has become a fact and is difficult to change. In general, Zhang Xue, an information analyst, believes that this year’s macroeconomic level is difficult to inject strong energy into the international oil market.

Although OPEC reached a new round of output reduction agreement in December 2018, the Federal Reserve recently lowered its GDP growth expectations for this year and next, which means that the Fed’s expectations of future slowdown in the U.S. economy are further enhanced. As the largest economy in Asia and the second largest economy in the world, China is also facing increasing trade uncertainty in 2019. Ministry of Commerce officials said: “At present, China’s foreign trade development is facing an increase in uncertainties and instability, and the rise of unilateralism and trade protectionism.” According to the General Administration of Customs, China’s exports fell by 4.4% in December from a year earlier, the biggest decline since December 2016, and imports by 7.6% from a year earlier, the biggest decline since July 2016, both of which are far below the economists’median estimate.

Under the combined effect of various factors, the international crude oil market will continue to oversupply in 2019, and the price is difficult to effectively boost. Due to the conduction effect, the cost support of PE market is weakened.

New capacity is pouring in

“2019 is a year of substantial growth in PE production capacity. On the one hand, there will be a large number of new capacity to join, on the other hand, due to the maintenance loss of capacity is relatively reduced, the market supply will be very relaxed. Liaoning polyolefin dealer Zhang Hao said.

According to Zhang Hao, this year, it is expected that more than 2 million tons of PE capacity will be added to Jiutai Energy, Hengli Petrochemical, Zhejiang Petrochemical, Qinghai Damei, Zhongan United and Ningxia Baofeng. The capacity growth rate is about 12%, which is much higher than 6.77% in 2018.

While a large number of new capacity has been put into the market, the overhaul devices are relatively reduced. According to Zhang Hao, 2019 is a “small year” for the maintenance of PE plant. The output loss is only about 600,000 tons, which is more than 60% less than 2018. After offsetting the new capacity, PE market will usher in more than 1 million tons of new output this year.

“Not only that, the world PE market will also have a large number of new capacity to join.” Zhang Hao said that foreign enterprises are keen on ethylene pyrolysis project in recent years because of its low cost and simple process. In 2019, Taipei Plastics, Sasol, Basel and other enterprises plan to produce more than 5 million tons per year of PE capacity. For a long time, PE import dependence in China is high. Foreign PE production capacity growth has a significant impact on domestic market prices.

Demand growth is expected to slow down

At present, with the slowdown of China’s economic growth, PE as a major petrochemical commodity, demand is affected. In addition, the negative impact of Sino-US trade frictions on China’s plastic exports will also be reflected this year. The demand of PE market will remain weak in a large probability.

According to Zhang Xue, PE is the most widely used variety of general synthetic resins. The downstream products are mostly disposable consumer goods, mainly used in daily life and agriculture, and have a high degree of correlation with the economic situation. As the global economic outlook is not good, the growth rate of PE demand in the consumer sector is bound to slow down.

According to Fangzheng medium-term data, the correlation between GDP growth rate and plastic product output growth rate is 89%. According to the economic data released recently by the National Bureau of Statistics in 2018, domestic GDP in 2018 exceeded 90 trillion yuan, an increase of nearly 8 trillion yuan over the previous year, an increase of 6.6%, a new low since 1990. With the negative impact of Sino-US trade frictions, domestic plastic product consumption and export growth may decline to a certain extent this year, and the macro demand for PE is bound to weaken.

Overall, PE production capacity at home and abroad has expanded dramatically this year, while demand growth is expected to be difficult to keep pace with. Loose supply will become the main tone of the market, and then suppress the weak PE market.

Price Trend
Recent domestic butadiene market consolidation mainly. As of January 23, the price of butadiene was 10,378 yuan per ton, according to business association monitoring.

II. Analysis of Influencing Factors

Products: At present, the domestic butadiene market has improved, downstream traders just need to replenish their warehouses before the festival, northern manufacturers have a better shipment situation, boosting market mentality, middlemen are reluctant to sell at low prices, offer is pushed up, and there is a certain bullish expectation for the next node of the manufacturer’s supply price, but some downstream traders are still cautious, the market turnover is general. Butadiene market in Shandong Province has an obvious mentality of low price and sells sparingly. The downstream market just needs to replenish its warehouse, which boosts the mindset of the industry and keeps the market quotation in order. Eastern China butadiene market atmosphere improved, downstream delivery mentality is still cautious, but the middleman offer is relatively strong, market offer consolidation. Asian closing price of butadiene, FOB Korea average offer $1145-1153 per ton; CFR China average offer $1195-1203 per ton.

Industry chain: styrene-butadiene rubber: demand itself is not good, and natural rubber futures also declined, coupled with the impact of supplier policy, the market of styrene-butadiene rubber shows a weak operation. Although some traders have no intention of upside-down shipment, it is difficult to increase the actual price. Trading is basically near the factory price, and a small number of deliveries. Cis-butadiene rubber: Domestic cis-butadiene rubber market fell. Businessmen offer near the factory price, the atmosphere of inquiry is not good, sporadic buyers buy at a reduced price, and spot turnover is scarce. SBS: The center of gravity of oil glue in domestic SBS market has been lowered, and the dry rubber track has been changed to run smoothly. Oil glue: With the decline of PetroChina’s supply price, businesses are cautious in issuing orders, and the purchase of new orders from downstream shoe material enterprises is weak. At the same time, Sinopec’s F875 pre-sale in South China is stable. In the aspect of dry rubber road reform, the supply price is stable, and the supplier controls the supply, the amount of business orders is limited, and the atmosphere of downstream stock entering the market is insufficient.

3. Future Market Forecast

On the positive side, the external price is firm; the supply side of butadiene is tight; on the negative side, the downstream synthetic rubber market is insufficient to follow up. Business Association butadiene analysts expect that the short-term domestic butadiene market will maintain a consolidation trend, focusing on market turnover.

Commodity Name: Acetone

Market Price (Jan. 22, East China):3700 yuan/ton

Analysis Points: Domestic acetone market offer increased. At present, port inventory pressure is not big, TRADERS’confidence is increasing, cargo holders’ mentality has been boosted, tender sentiment is obvious, downstream terminal enterprises’purchasing follow-up is still acceptable, second-hand merchants’ inquiry atmosphere is strong, the volume of real transactions is general, business associations expect that the mainstream negotiation area of East China market is 3700 yuan/ton, the mainstream negotiation area of Yanshan and Shandong markets is 3700 yuan/ton, and that of South China market is 3700 yuan/ton. The bargaining price is around 3800 yuan/ton.

According to Dow Jones, the head of Schlumberger, the world’s largest oil service company, said on Friday that shale oil production growth in the United States may slow this year as drillers have cut budgets to cope with falling oil prices.

Paal Kibsgaard, chief executive of Schlumberger, said in a conference call with investors that the recent drop in oil prices had prompted global oil producers to adopt a more conservative approach, especially in the United States.

Kibsgaard said that Schlumberger’s client, U.S. shale oil drillers, may have a slightly lower budget in 2019, especially at the beginning of the year. This means that the momentum of rapid growth in U.S. oil production will slow down in 2018.

Kibsgaard told the company’s fourth-quarter earnings conference by telephone: “The growth of shale oil production in the United States is likely to be more moderate in the next few years.”

Due to weak oil prices, some oil producers have begun to reduce their drilling plans for 2019. Oil prices in the United States have fallen by more than 30% in recent months. Although oil prices have rebounded in the new year, they are still at a low level, which has forced many shale oil producers to cut spending.

In public statements and documents, Chesapeake Energy, Diamondback Energy, Parsley Energy and Centennial Resources Development said they either planned to reduce the number of drilling platforms in 2019 or recently reduced production plans.

So far, however, production cuts by U.S. shale producers are still relatively modest, and this year is expected to push U.S. crude oil production to a record high, but the growth rate will not be as fast as 2018. The U.S. Energy Intelligence Agency (EIA) expects U.S. oil production to increase from an average of 10.9 million barrels a day last year to 12.1 million barrels a day in 2019.

As a result, Schlumberger said it would spend $1.5 billion to $1.7 billion in 2019, down from $2.2 billion in 2018. Kibsgaard said this was mainly due to a slowdown in oil and gas drilling in the United States.

The closing price of p-xylene in Europe rose by $10 per ton on January 18, closing at $965-967 per ton FOB Rotterdam.

On Jan. 18, the closing price of p-xylene in Asia increased by $10 per ton. The closing price was $1050-1052 per ton FOB in Korea and $1070-1072 per ton CFR in China.

By the end of January 18, Butadiene FOB Rotterdam spot was 848-852 US dollars/ton, down 25 US dollars/ton; Butadiene FD spot in Northwest Europe was 808-812 Euro/ton, down 30 Euro/ton.