Crude Oil
Oil prices continued to surge after the US and Iran appeared to be in a standoff about changing the existing Iran deal. Brent futures gained $1.25 to settle at $74.87 /bbl while U.S. crude futures gained $1.35 to settle at $ 69.72 /bbl. WTI touched a high of $ 69.97 /bbl, its highest since November 28, 2014.
For the week, Brent gained 1.5% while WTI gained 2.4%. This was the fourth week of gains for Brent .
The US has been insisting that changes be made to rectify the ‘terrible flaws’ in the deal else the US will pull out of it. Iran, for its part, said on Sunday that Iran had plans to respond to any move by Trump and the US would regret a decision to exit the accord.
European powers want to hand Trump a plan to save the Iran nuclear deal next week. But they have also started work on protecting EU-Iranian business ties if Trump makes good on his threat to withdraw.
Baker Hughes reported an increase of 9 rigs in its weekly report on Friday. This brings the number of active rigs to 834, the highest number since March 2015.
In other news, US unemployment dropped to 3.9% in April, falling below 4% for the first time since December 2000. A level of unemployment below 4% is regarded as a possible trigger for inflation and hence could be a signal for an interest rate hike.
Losing Energy…………But still refusing to give up
Last week was another week with a narrow range; $ 75.41/bbl high, and a $ 72.38 low. This was the fourth positive week in a row of which the last two have been small rises.
Last week we had said that “barring probable retest of the 74-76 range, Brent is likely to head back to the 68-69/bbl range” Brent has moved to retest these levels.
While the weekly chart continues to look exhausted (the body of the candles getting smaller and smaller), the daily chart shows a strong reversal with great momentum on the upward swing. So where do we look for direction?
In general, all oscillators are indicating a terribly overbought market which would make us wary of adding length.
Trading Strategy
Last week we has recommended going short with targets at 68-69/bbl. Given the momentum in the daily charts, we would recommend trading light this week after some clarity is gained on market direction. For the bold, we would recommend a small short position at this level with a stop above $ 78.00 targeting $ 71.00 – 71.50.
Supports and Resistances
Immediate Supports are around 72.50-73.50/bbl. Immediate Resistance at 77.50 -78.75 /bbl.
About the Analyst
Vignesh Eswar has been a Technical Analyst, Advisor, Trader, and Trainer with over 23 years experience in Indian markets.
Naphtha
Asia’s naphtha crack ended last week at a 3 and a half month of $ 92.30/MT on the back of both firm demand and dwindling supplies.
The crack for balance May is has improved to -$ 0.40 / bbl.
Gasoline
Asia’s gasoline crack recovered a little on Friday to settle at $6.74 /bbl. The surplus in stocks in Europe and Asia has apparently come down to more reasonable levels and, with the driving season round the corner, we could perhaps see improvements in margins.
The balance May crack has however dropped further to $ 9.60 / bbl.
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Asia’s cash premiums for 10 ppm gasoil recovered as refinery turnarounds kept supplies tight.
Cash differentials for gasoil with 10 ppm sulphur content rose to 42 cents a barrel to Singapore quotes, up from 36 cents on Thursday. Cash premiums for jet fuel edged lower by a cent to $1.01 a barrel to Singapore quotes on.Friday
The overall jet fuel market, however, remains well supported in the near term, helped by expected strong aviation demand during the summer. Air-passenger traffic in Asia-Pacific, which makes up about 34 percent of the global market, rose by 12 percent year on year in March, supported by strong economic growth in the region, the International Air Transport Association (IATA) said on Thursday.
The balance May crack has improved to $ 14.95 / bbl with the 10 ppm crack quoting at $ 15.70/bbl. The regrade is valued at $ 0.40 /bbl
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
Selling pressure weighed on Asia’s 380-cst fuel oil market for a second session straight on Friday with the front-month time spread and crack trading lower. Cash premiums of the mainstay fuel were also lower amid lower deal values. Improved availability of prompt supplies and profit-taking were among the factors that helped prices retreat from recent multi-month highs, but narrow arbitrage arrivals and firm seasonal demand over the near term are likely to limit further downside potential..
The May 180 cst crack has slumped further to -$ 6.20 / bbl. The visco spread has narrowed to $ 1.50/bbl.
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
The Cal -19 strips for Jet and Gasoil continue to strengthen with Jet being valued at $19.65 /bbl and 500 ppm gasoil at $ 18.65 /bbl. We enquired in the market about these levels. The market is of the opinion that the second half of 2019 would be extremely strong for middle distillates as stocks continue to be depleted around the globe.
While we concur with this expectation, the purpose of hedging basis a rule is to take insurance if our views go wrong. We will cautiously view this market and continue to add recommendations from time to time.
Hedge recommendations are essentially made for refiners. These are not trading positions as such. The rationale of these positions is to lock in extraordinary levels for the refiner.
Click Here to see how all our recommendations have fared
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.