Crude Oil
Oil prices fell on Wednesday and posted the worst monthly performance since mid-2016 on evidence of rising global crude supply, but losses were limited by signs of strong U.S. demand for fuel. The Brent December contract, which expired yesterday, fell 44 cents cents to settle at $75.47 a barrel. The more-active January contract fell 91 cents to settle at $75.04 a barrel. U.S. crude settled 87 cents lower at $65.31 a barrel.
Both benchmarks were more than $10 a barrel below the four-year highs reached on Oct. 3. They both posted their worst monthly performance since July 2016, with Brent falling 8.8 percent for the month and WTI dropping 10.9 percent.
Weighing on market sentiment on Wednesday were signs of rising global output. U.S. crude oil production surged by 416 kb/d to a record 11.35 mb/d in August. The United States and other top producers Russia and Saudi Arabia pumped 33 mb/d in September, an increase of 10 mb/d since the start of the decade. Russian oil output has reached 11.41 mb/d in October, a level unseen since the collapse of the Soviet Union in 1991, an industry source told Reuters.
Sinopec is said to be in talks with government authorities and suppliers to make special arrangements for Iranian imports in the next few weeks. Most of the Sinopec refineries are configured to use Iranian crude, and the company imported 0.41mbd of Iranian crude last year, making up 8.6% of China’s crude throughput, he added
Oil market sentiment received some support from equity markets, which pulled back from 20-month lows after pledges by China to support its markets.
The DOE reported a gain of 3.2 million barrels in crude stocks last week. This number was less than both API numbers as well as market expectations and therefore, slightly supportive for the market. Gasoline and distillate stockpiles fell as total product demand over the past four weeks rose 5.4 percent from a year ago.
The material balance statement tells a slightly different story from the stock reports however. With net imports decreasing by 640 kb / d, it is difficult to see how stocks would rise given an increase in crude consumption of 150 kb/d. Increase in domestic production was only 300 kb/d.
The material balance for gasoline too suggests a build with a drop in demand and increase in production. Only the healthy growth in distillate demand seems to ratify the draw in stocks, that that too seems to be overstated.
Naphtha
The Asian naphtha market was hit by excess supplies. Demand has failed to turn the bearish market around. South Korea’s SK Energy and Japan’s Idemitsu were seeking naphtha, in a week when GS Caltex and Hanwha Total locked in cargoes for December at discounts. Malaysia-based Titan was in talks to buy naphtha on a 12-month contract starting in February 2019. The Philippines’ JG Summit was also seeking naphtha for 2019 delivery.
The November crack has dropped to – $ 5.25 / bbl
Gasoline
Asia’s gasoline crack was at a four-session high on Wednesday at $2.99 a barrel after falling to a 27-month low on Monday but the current margin still reflected a market awash with supplies as it was 68.4 percent lower than a year ago.
Gasoline stocks in Japan rose 300,000 barrels to a 6-week high of 10.37 million barrels in the week to Oct. 27. Light distillates stocks held in Fujairah were also up and hit a record high of 9.2 million barrels in the week to Monday.
The November crack has dropped to $ 3.15 /bbl.
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Cash differentials for gasoil with 10ppm sulphur content fell to 70 cents a barrel to Singapore quotes, the weakest since Oct. 11. The cash differentials were at 97 cents a barrel on Tuesday.
The Nov/Dec spread for 10ppm gasoil narrowed for the third consecutive session to 58 cents a barrel on Wednesday, from 76 cents per barrel on Tuesday.
Meanwhile, cash differentials for jet fuel were at a discount of 1 cent a barrel to Singapore quotes on Wednesday, compared with a 2 cents discount a day earlier. Middle Distillate stocks in Fujairah rose marginally by 42 kb for the week ended 29 Oct.
The November crack has jumped to $ 17.20 /bbl with the 10 ppm crack at $ 18.15 /bbl. The regrade is higher at $ 0.65 /bbl
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
Concerns of tight near-term supplies continued to boost the fuel oil market with 380-cst fuel oil cash and ex-wharf premiums climbing higher. Strong buying interest and higher deal values lifted cash premiums for 380-cst fuel oil cargoes to their highest since June 2015 at $9.66 a tonne above to Singapore quotes on Wednesday.
Asia’s November 180-cst fuel oil crack to Dubai crude edged lower on Wednesday to a premium of 94 cents a barrel, down from $1.06 a barrel in the previous session. Despite the weaker fuel oil crack on Wednesday, fuel oil margins were still trading at “very strong” levels. The front-month fuel oil crack on Monday set a record high of $1.61 a barrel above Dubai crude amid concerns of tightening global supplies.
Fuel Oil stocks in Fujairah fell by 1.35 million barrels to 7.03 million barrels in the week ending 29 Oct.
The November 180 cst crack is higher at +$ 2.20 / bbl with the visco spread at $ 0.95 /bbl
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
Fuel Oil cracks seem to have gone through the roof in the prompt. Since it will not be possible to track the November crack, we will leave it alone. However, we will hedge the Jan-19 crack which has moved into positive territory today at 0.15 /bbl.
At this stage, we will always see top management asking questions about the necessity to hedge fuel oil when it appears so strong and getting stronger. The answer to that is that the purpose of risk management is not to call the market. Rather it is to insure some windfall gains for the business. Losses in Risk Management are offset by profits on the physical side and we are, in effect, locking in a good margin for our products.
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.