Crude Oil
Oil prices retraced their losses on Friday as traders wanted to square positions on the weekend. Brent crude futures settled 40 cents higher at $79.78 a barrel. WTI crude also recovered 57 cents to settle at $69.22 a barrel.
For the week, Brent lost around 0.8%. WTI lost a lot more i.e. 3.1%.
WTI has moved into contango on Thursday for the first time since May 22. On Friday, front-month U.S. crude futures traded at the biggest discount to the second month in nearly a year. Markets anticipate further inventory builds in Cushing as new pipelines come online.
Continued weakness in global equities is also bearing down on crude.
In the meanwhile, the number of rigs in active service rose by 4 to 873, the highest since March 2015.
On the bullish side, refinery throughput in China, the world’s largest oil importer, rose in September to a record 12.49 million bpd. The data fed hopes about oil demand in China, even though economic growth slowed in the third quarter to its weakest since the global financial crisis.
For now, even though supply fears seem allayed, the markets continue to be nervous about the reaction of both the US and Saudi Arabia on the Khashoggi murder incident.
Money managers cut net long U.S. crude futures and options positions in New York and London by 37,080 contracts to 259,375 in the week to Oct. 16.
22 Oct 2018
After the high made two weeks ago, crude prices have slowly, but surely, fallen albeit with strength and multiple support levels before the level gives up. We have seen multiple strong recoveries from $ 79.20 and even around $ 80.00 a barrel. The price action therefore still gives us a picture of a ‘be long or be wrong’ syndrome.
The bullishness is winding down on the oscillators, particularly in the daily RSI which is mildly in oversold territory.
Trading Strategy
Last week, we had recommended going long just under $ 81.00 with a stop below $80.50. With that previous multiple top level having been taken out, it is now time to review our strategy. The price action we see makes us hesitate to go short. We would instead prefer to go long about $ 80.75 and target higher and stay on the sidelines otherwise.
Supports and Resistances
The first support is seen in the $ 78.50 – 70 area which is also where the 50 DMA is resting as of now. If that is breached further supports are seen in the $ 77.50 and then $ 76.75 zones.
Resistances are seen in the $80.40-50 area, then around $81.70-80 area and then around $82.50-60 area.
Naphtha
Asia’s naphtha crack fell for a third day on Friday to hover near a four-month low of $72.38 a tonne as market remained awash with supplies despite some demand emerging this week.
China’s refinery throughput hit a record daily high of 12.49 million barrels per day (bpd) in September, up from 11.85 million bpd in August
The November crack has fallen to – $ 2.65 / bbl
Gasoline
Asia’s gasoline crack recovered by 16 percent to $3.55 a barrel after falling to its lowest in more than two years in the previous session. But the current margin level still reflected a very weak market when compared to the average of $7.46 a barrel for the first nine months of this year.
Gasoline stocks held in ARA fell 7 percent or 75,000 tonnes to reach a three-week low of 988,000 tonnes in the week to Oct. 18. Despite the fall, the inventory level was 23 percent higher than a year ago.
The November crack is higher at $ 4.75 /bbl.
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Asia’s 10ppm gasoil cash premium to Singapore benchmark prices rose for the fifth straight session on Friday and set a new high for 2018 at $1.67 a barrel as buyers grappled with tighter supplies across the region.
Gasoil stocks in ARA refining and storage hub for instance fell 5.3 percent in the week to Thursday to a five-week low of around 2.9 million tonnes. The data mirrored the trend in the United States and Singapore where their middle distillates stocks were also down.
However, jet fuel fundamentals were weaker as cash differentials to Singapore’s benchmark prices stayed at discount levels for the fourth straight session after briefly flipping into positive territory on Monday.
The November crack is higher at $ 16.35 /bbl with the 10 ppm crack at $ 17.15 /bbl. The regrade is higher at $ 0.75 /bbl
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
Asia’s 380-cst time spread climbed for a third straight session on Friday to a near two-week high as tight near-term supplies of finished grade fuel oil continued to lend support. The Nov/Dec time spread for 380-cst fuel oil widened its premium to $7 a tonne on Friday, up 25 cents a tonne from the previous session and its highest since Oct. 9.
China’s Ministry of Commerce approved bonded fuel oil blending businesses in the free-trade zone area located in the city of Zhoushan, in Zhejiang province, according to a statement published on the ministry website on Friday. The new regulation comes as Zhoushan aims to become a regional trading hub for bunker fuel.
Weekly fuel oil stocks in ARA were 6 KT higher at 1.037 million tonnes in the week ended Oct. 18.
The November 180 cst crack is higher at +$ 0.20 / 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 strengthen. We will add one tranche to our December hedges should that crack turn positive as also one tranche to 1Q19 should it rise above -$ 1.00 /bbl.
The regrade for 1Q 19 is also strengthening. We shall add a tranche there above $ 1.75 /bbl.
The cal 19 Distillate cracks are easing. This would largely seem to be arising out of easing of the 4Q19 crack.
Naphtha and Gasoline continue to stay weak. We will continue to monitor the situation and add consumer hedges 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.