Crude Oil
Yesterday, we had remarked that we had expected prices to end lower. We apparently did not account for more tensions, real or perceived in the Persian Gulf which provided dramatic support to prices. Having said that, both contracts lost over 3.6% on the week and have fallen 3 weeks in a row.
While concerns of US shale production undermining OPEC efforts to rebalance the market, other factors also come into play. But first let us look at US prospects. Baker Hughes reported a record 21st week of increase in rigs. The count at the end of this week stands at 741, an addition of 8 rigs. This brings the level of rigs to around the same level as April 2015.
The US has already added 500 kbpd since January 2012. If that were not enough, we have already seen Libya and Nigeria add over 600 kbpd since the announcement of the cuts. This more or less wipes out the OPEC cut.
We have also watched crude stocks build in the US and reduce in the SPR of the US. We wonder if Donad Trump’s intention is being subtly executed already (SPR stocks have drawn two weeks in a row thus far).
What is more worrying in our opinion is the lack of demand for products (barring fuel oil).
Gasoline stocks are at their highest levels for this time of the year in both the USA as well as in ARA. Even in Singapore, they are well above the 5 year average.
If we see distillate stocks too, they are at seasonal highs in both US and Singapore. In ARA they would be above the five year averages.
If we add the jet stocks in ARA to the Gasoil stocks, they are well above the 5 year averages.
We would seriously need some extremely bullish draws in the stock data for prices to reverse in our opinion.
News on the bullish side is that Shell declared force majeure on Bonny Light following a leakage in the pipeline. These kinds of jitters are bound to go on affecting supplies from time to time.
Also, interestingly, net long positions held by speculators on WTI contracts are increasing. The net increase of around 15,000 lots is almost equally split between addition of fresh long positions and squaring off of short positions. We can say that the funds believe that we are close to a bottom in Crude Oil prices. This is going to buffer up prices still further for now.
Technical Analysis
The daily chart suggests that crude is moving in a falling channel with a support at about the $ 44.50 area. The MACD suggests that there is still more scope for prices to fall. The weekly chart suggests that crude having broken a rising uptrend, could fall further too. It would need a close of above $ 50.00 / bbl to return to the channel. But there too, the MACD suggests room for further easing.
Supports are in the $ 46.50-70 area (the last low), and then at $ 44.50. Resistances would lie at $ 48.70, $ 50.00 and then $ 50.45.
Naphtha
Naphtha continues to stay supported with spot demand for July cargoes coming from South Korea. India’s IOC which as reported by us earlier, has lined up an extensive maintenance turnaround plan for its refineries in 2017. As part of this plan, IOC plans to shut a 150,000 barrel per day (bpd) crude unit at its 300,000 bpd Panipat refinery in northern India and an associated naphtha cracker plant for about a month in July, freeing up some naphtha for exports. This will likely ease naphtha premiums for July/August.
The June Japan Naphtha- Dubai crack is up at -$0.75 /bbl and the July crack is at -$0.90 /bbl
Gasoline
Gasoline cracks were supported by news of IOC’s extensive turnaround plan which will force the country’s top refiner to tap overseas markets for gasoline and diesel to meet rising local demand. This increased demand will help reduce stocks and thereby improve cracks.
June crack is higher at $11.60 /bbl while the July crack is at $ 10.65 /bbl
Distillates
The Distillates market continues to be strong on the back of summer demand starting to come in from the Middle East with Saudi Aramco heard to be making enquiries about spot gasoil cargoes. Gasoil is used for power generation during the summer in the region. Also, IOC of India is likely to continue importing diesel on account of its maintenance plan reported above.
The June crack is up at $ 10.35 /bbl while the June regrade has softened to -$0.20 /bbl. The July crack is at $ 9.90 /bbl with the July regrade at $ 0.05/bbl
Fuel Oil
Fuel Oil cracks have eased since turning positive last Friday. However, the market continues to remain bullish with strong demand and fuel oil inventories in Singapore and Amsterdam-Rotterdam-Antwerp.
The June 180 cst crack has softened to -$ 0.35 / bbl/ The visco spread is unchanged at $ 1.35 / bbl. The July crack is at -$1.05 /bbl
About this blog
This blog post attempts to give a top level summary of the Singapore market goings on to a person who seeks to obtain a directional sense of the market on a daily basis.