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The Big Oil Bet That Went Bad

1. Exploding distillate glut

- U.S. distillate stocks are soaring, jumping from 136 million barrels in mid-April to 174 million barrels at the end of May.

- Distillate stocks are only 1 percent below a record high last reached in 2010.

- “The latest inventory build happened even more quickly than during the 2008/09 economic crisis, as stocks soared now by 52 million barrels, i.e. 43%, in just two months,” Commerzbank said in a note. “This is attributable first and foremost to extremely weak demand, which at 2.7 million barrels per day has fallen to its lowest level since April 1999.”

- At the start of the pandemic, it was gasoline that was dragging down refiners. Now it is diesel and other distillates.

- Cracks for diesel in Europe have collapsed to an all-time low. “The situation looks awful,” an executive at a big European refiner told Reuters.

2. Petrochemical sector facing a bust

- The oil majors have made a large bet on plastics and petrochemicals as a hedge against long-term demand. But the market for polyethylene is facing overcapacity and narrowing margins.

- The buildout of petrochemical facilities in the U.S. over the past decade has led to a wave of new facilities, but prices for polyethylene – the building block of plastic – have nosedived.

- PE prices traded at about $1 per ton in 2011-2012 when Royal Dutch Shell (NYSE: RDS.A) planned its petrochemical…





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