Crude Oil
Oil futures rose Friday, with the U.S. benchmark booking its first weekly gain in about two months. Brent crude oil rose $1.09, to $75.82 a barrel. U.S. light crude tacked on 89 cents to settle $68.72 a barrel.
For the week, Brent gained 5.5% to snap a 3 week losing streak. WTI gained 4.2% for the week after seven consecutive weeks of declines.
The oil market is likely to remain on edge about potential oversupply in the upcoming week, despite signs that U.S. sanctions on Iran could curb output.
Concerns that an escalating trade war between China and the U.S. could slow economic growth and weigh on crude purchases eased slightly after sources told Reuters that China’s Unipec will resume purchases of U.S. crude oil in October, after a two-month halt due to the fight. Worries that Mexico’s incoming administration would not strike a bilateral agreement over NAFTA with the U.S. also weighed on the market.
At the same time, concerns about global crude supply intensified with signs that U.S. sanctions on Iran are curbing shipments.
The dollar index fell on Friday, boosting the price of oil and other dollar denominated commodities. The dollar fell after Federal Reserve Chair Jerome Powell said steady rate hikes are the best way to protect the U.S. economic recovery.
Traders kept an eye on the North Sea, where workers on three oil and gas platforms plan to strike next month. Oil production will stop during the strikes.
U.S. energy companies cut nine oil drilling rigs this week, the biggest reduction since May 2016, General Electric Co’s Baker Hughes energy services firm said. Changes in the rig count serves as an indicator of future production trends.
Brent had a strong last week with a big green candle to show for it. That sentiment appears to have changed is apparent from the daily chart which gave green candles every day. Prices took support from the 200 DMA and, jumped in a steep, but neat rising channel.
Trading Strategy
Last week we had suggested an aggressive strategy for traders with a bullish bias which is now deep in the money. Our shorts got stopped out at $ 73.25. While the longer term charts suggest there may be more room to the upside, the RSI on the daily chart is now in overbought territory. Our medium term bias remains to the downside for now.
We would recommend staying on the sidelines for now going short near Friday’s high at $76.50 with a stop above $ 78.00. For those with length who wish to stay long, we would recommend a trailing stop around $ 75.00. The first support is the 100 DMA around $75.00 followed by the 50 DMA which is at $ 74.45. The next support is at 50% of this pullback around $73.45
Supports and Resistances
The first support is the 100 DMA around $75.00 followed by the 50 DMA which is at $ 74.45. The next support is at 50% of this pullback around $73.45.
We see resistances at $76.50, $77.90 and then $ 78.57.
Click here for bigger and longer term charts.
Naphtha
Asia’s naphtha crack fell on Friday to a five-week low of $94.13 a tonne, weighed down by high supplies and slower demand. Cargoes arriving in Asia next month from the West, including European and the Mediterranean, are estimated at 1.3 million tonnes, similar to August arrivals. This could rise to at least 1.4 million to 1.5 million tonnes because of abundant western supplies.
The September crack is lower at -$ 0.90 /bbl
Gasoline
Asia’s gasoline crack, at $8.30 a barrel, was at its lowest since Aug. 7 because of plentiful supplies. A stock draw down in Europe did not affect the Asian market because it was offset by a build in U.S. inventories.
Gasoline stocks held in ARA fell 14.3 percent in the week to Thursday to 772,000 tonnes, the lowest for nearly 10 months. This was also below inventories from a year ago at 878,000 tonnes.
The September crack is lower at $ 9.15 /bbl
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Asia’s 10 ppm gasoil crack rose to its highest in nearly three months on Friday, buoyed by firm demand and lower inventory levels in the region.
Strong regional demand, largely from Australia and Indonesia, and lower inventory levels are lending support to prices and margins. Chinese exports have been tracked lower so far this month, while official customs data showed July volumes hitting 1.54 million tonnes, the lowest monthly rate since March. On the other hand, India’s gasoil exports have been tracked higher in August, surpassing July’s volume amid monsoon rains which have dampened domestic demand.
Gasoil stocks in ARA rose 3 percent in the last week. Gasoil stocks were buoyed by low water levels on the Rhine river, limiting movements from ARA to inland markets in Germany and Switzerland. Gasoil inventories for the week ended Aug. 23 rose to 2.585 million tonnes, from 2.503 million tonnes in the week before.
The September crack is higher at $ 15.35 / bbl with the 10 ppm crack at $ 16.15 /bbl. The regrade is lower at – $ 0.20 /bbl.
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
The front-month 380-cst barge crack to Brent crude dropped for a seventh straight session on Friday amid higher crude prices and an improved supply outlook for September. The September 380-cst barge crack to Brent crude slipped to about minus $10.05 a barrel on Friday. The front-month 380-cst crack discount was last wider on June 20.
Russian exports of fuel oil in July climbed 5 percent from June to 2.865 million tonnes, the latest data from the Energy Ministry showed.
Fuel oil inventories in ARA rose 48,000 tonnes, to a three-week high of 1.106 million tonnes in the week ended Aug 23.
The September180 cst crack is lower at -$ 4.15 / bbl with the visco spread at $ 1.35 /bbl.
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
Cal-19 distillate prices are keeping on rising. We are now watching the 10 ppm Gasoil crack for the year which we will hedge at current levels of $ 17.85 /bbl.
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.