Crude Oil
Oil prices fell on Wednesday, with U.S. futures settling below $70 a barrel for the first time in a month, after U.S. crude stockpiles rose 6.5 million barrels, almost triple what markets had forecast, while exports dropped. Brent crude futures dropped $ 1.36 to settle at $80.05 a barrel. WTI crude futures fell $2.17 to settle at $69.75 a barrel.
Volume was above average on Wednesday, with more than 627,000 U.S. crude contracts changing hands, compared with a 10-month daily average of about 583,000 contracts. This high volume may well suggest a turn around in markets.
The scandal over the disappearance of prominent Saudi critic and journalist Jamal Khashoggi, who disappeared two weeks ago after entering the Saudi consulate in Istanbul, underpinned oil markets earlier in the week. U.S. lawmakers pointed the finger at the Saudi leadership, suggesting sanctions could be possible. Western pressure mounted on Riyadh to provide answers, but President Donald Trump’s comments suggested that White House may not take additional action against the Saudis, particularly after Saudi Arabia said it will conduct an investigation. On Wednesday, Trump denied that he is giving cover to the Saudis, and that the results of the investigation into Khashoggi’s death should be known within a week. Investors worry Saudi Arabia could use oil supply to retaliate against critics. Such a move would roil markets, as the Saudis have not used oil as a policy weapon since the oil embargo of the early 1970s, and the market is already anticipating reduced supply when sanctions on Iranian oil exports resume on Nov. 4. Iran has accused Saudi Arabia and Russia of breaking an OPEC-led agreement on output cuts by producing more crude, which will thus hurt their market share.
U.S. crude stocks rose 6.5 million barrels last week, the fourth straight weekly build, as exports were down to 1.8 million barrels per day, the U.S. Energy Information Administration said, in a report markets characterized as bearish. U.S. crude production slipped 300,000 bpd to 10.9 million bpd last week, which market attributed to the effects of offshore facilities closing temporarily for Hurricane Michael.
However the refinery run rates appear to have remain unchanged
The material balance statement reveals a sharp increase in the production of gasoline. This seems to be anomalous given that refineries should be actually switching to the distillate mode. However, if the production figures are correct, gasoline stocks should be showing a build. The sizable drop in distillate demand should also have resulted in a build of distillate stocks.
Naphtha
Asia’s naphtha crack eased by 27 cents to reach a two-session low of $83.48 a tonne with muted demand from end users. High supplies have been putting pressure on spot prices recently, with cargoes scheduled for second-half delivery to South Korea, Asia’s top importing country, to fall to discount levels of $4 and steeper last week.
The November crack has fallen to – $ 2.30 / bbl
Gasoline
Asia’s gasoline extended losses for the third day on Wednesday, nearing a 3-1/2 month low of $4.48 a barrel as supplies were seen ample.
Gasoline inventories were building across the region. Japan’s gasoline stocks for instance rose 390,000 barrels to a two-week high of 9.52 million barrels in the week to Oct. 13. Light distillates stocks held in Fujairah at nearly 8.2 million barrels in the week to Oct. 15 were at their highest since April 23
Singapore cash trades were unusually busy with 13 deals totalling 650,000 barrels of the fuel changing hands, the highest volume traded in a single session in more than 18 months. Of these, PetroChina sold six of the cargoes.
The November crack is lower at $ 5.25 /bbl.
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Asia’s 10ppm gasoil cash premium to Singapore benchmark prices extended gains on Wednesday, edging up to a fresh one-year high of $1.37 a barrel.
Fujairah middle distillate stocks were at 4.354 million barrels in the week ended Monday, compared with 4.339 million barrels in the week to Oct. 8. Since the start of the year, middle distillate inventories in the Fujairah oil hub have averaged 2.798 million barrels a week, compared with a weekly average of 3.267 million barrels in 2017. However, compared with year-ago levels, Fujairah middle distillate inventories were about 53 percent higher in the week to Oct. 15.
The November crack is higher at $ 16.10 /bbl with the 10 ppm crack at $ 16.90 /bbl. The regrade is lower at $ 0.50 /bbl
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
The front-month East-West arbitrage spread extended gains on Wednesday, climbing to a near record high seen earlier in the month as near-term supply constraints and firm demand in Singapore continued to support. The 380-cst East-West arbitrage spread for November was at about $31.50 a tonne on Wednesday, up from $30.25 a tonne in the previous session.
Total fuel oil flows into East Asia for October are estimated at about 5.5 million tonnes, among the lowest for the year and similar to volumes seen earlier in June and July.
Fuel oil inventories at Fujairah 21,000 barrels lower to a three-week low of 7.913 million barrels in the week ended Oct. 15. Fujairah fuel oil inventories are now 9 percent lower from the same time last year. In 2018, Fujairah’s fuel oil stocks averaged 8.2 million barrels compared to 9.974 million barrels in the year before.
Ship owners accelerated installations of engine cleaning systems this year ahead of IMO’s new rules in 2020 which sharply reduce the amount of sulphur ships can burn and has impacted fuel and gasoil futures. Lower HSFO prices have made scrubbers more economically attractive to shippers and if demand for HSFO drops less than expected, prices of the fuel could rebound. With the spread between HSFO and 0.5 percent gasoil currently at around $28 a barrel, scrubber installation still makes economic sense. A total of 1,850 vessels have now installed scrubbers.
The November 180 cst crack has jumped to -$ 0.35 / bbl with the visco spread at $ 1.15 /bbl
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
Fuel Oil continues to grow in strength. In keeping with hedging discipline, we will add one more tranche of Fuel Oil crack for November at current levels of – $ 0.35 /bbl and December at -$ 0.95 /bbl. We will also add a tranche of FO crack for 1Q19 at current value of -$ 2.15 /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.