Pakistan Power_Cracks lose steam as recovery stammers, (AKD Daily, Aug 07, 2020)
AKD Daily
Pakistan Power: Cracks lose steam as recovery stammers
- POL product cracks paired back some gains during July’20, with underlying crude benchmarks higher (July’20 Arab Light average at US$43.5/bbl up 24%MoM) indicative of global economic reopening post COVID-19, taking monthly HSD/MS crack to Arab Light to average US$+4.3/-0.8/bbl, near 4QFY20 averages (US$5.6/-0.9/bbl) but below CY20TD averages (US$+6.4/+0.1/bbl).
- HSFO cracks crashed 3.1xMoM to US$-8.2/bbl (vs. 4QFY20/CY20TD avg of US$-2.9/-9.1/bbl), where bunker fuel demand destruction post IMO-2020 implementation, spike in crude prices and sour crude supply disruptions have kept cracks volatile.
- Indications of systemic slowdown in global oil production (particularly US shale production) and OPEC+ plans to start loosening cuts (9.7mn bpd May’20 cut to be rolled back to 7.7mn from Aug’20) in the backdrop of COVID-19 driven economic externalities (rising unemployment, trade protectionism) are expected to have a jarring impact on crude prices.
- Contrasting power generation costs on FO with RLNG we find the relative stability in domestic HSFO as opposed to the drastic fall in RLNG prices raising the cost divergence between the two to PkR5.0/KwH (June’20 cost of gen on FO/RLNG at PkR13.6/8.5/KwH) approaching levels last seen in Sept’19 and propagating the demise of FO in the domestic power mix.
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