Crude Oil
Oil prices tumbled more than 6 percent on Tuesday in heavy trading volume, with U.S. crude diving to its lowest level in more than a year. Brent crude fell $ 4.26 to settle at $62.53 a barrel. WTI crude futures also lost $ 3.77 to settle at $53.43 a barrel.
More than 946,000 front-month WTI contracts changed hands, exceeding the daily average over the last 10 months and the second-highest daily volume since June. Crude prices were caught in a broader Wall Street selloff fed by mounting concerns about a slowdown in global economic growth.
Macro-focused funds and commodity trading advisory (CTA) firms have pulled back positions in recent weeks as the selloff has accelerated. According to Credit Suisse, prior to oil’s selloff in early October, macro/discretionary funds and CTAs held a net long position that ranked in the top decile over the past five years. As of Monday, those funds were balanced between long and short positions as traders sold long positions and funds shifted to the sidelines.
API Data
After 6 consecutive weeks of builds, the API reported a draw in crude stocks. While the market was expecting a build, the draw was quite small. Gasoline stocks built more than expected while distillate stocks drew less than expected. This makes report neutral to slightly bearish. We await DOE data today for further corroboration.
Naphtha
No fresh news on the Naphtha market today.
The December crack is steady at -$ 4.75 /bbl
Gasoline
Asia’s gasoline crack rose to a more than two-week high on Tuesday, supported by pockets of improved demand but gains could be capped by a persistent glut in supplies of the motor fuel. The benchmark Singapore 92 RON gasoline crack against Brent crude climbed to $1.54 a barrel, from $1.16 in the previous session and its highest since Nov. 2.
Indonesia’s state-owned Pertamina was said to be seeing higher imports of gasoline in December.
The December crack is higher at 2.90 / bbl
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Cash differentials for 10ppm gasoil widened their discounts to 9 cents a barrel to Singapore quotes on Tuesday, as against a discount of 5 cents a barrel on Monday.
Cash differentials for jet fuel also weakened as the front-month spread turned back into contango. They were two cents lower on Monday at a discount of 21 cents a barrel to Singapore quotes.
The December crack is lower at $ 16.15 /bbl with the 10 ppm crack at $ 17.10 /bbl. The regrade is at $ 2.25 /bbl
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
The front-month Singapore 180-cst fuel oil refining margin hit a record high on Tuesday for the second time this month, boosted by tightening global supply and falling crude oil prices. The front-month Singapore 180-cst fuel oil swap was at a record premium of $4.16 a barrel above Dubai crude oil during midday Asia trade on Tuesday.
Lower fuel oil output from refiners in the UAE and northwest Europe, limited Iranian fuel oil exports due to U.S. sanctions on the nation and steep declines in crude prices have bolstered fuel oil markets.
While refinery upgrades and disruptions have crimped global fuel oil supply this year, firm demand could keep margins high in the near-term. However, as the profits from producing fuel oil remain at elevated levels, refiners may soon begin to boost supply by increasing output of residual fuels.
The December 180 cst crack is higher at +$ 4.35 / bbl with the visco spread at $ 0.75 /bbl
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
The regrade has gone on strengthening with 1Q19 crossing $2.05 / bbl. We shall put in place a hedge at that level. We shall also put in place a hedge for Fuel Oil for 2Q19 at -$0.95. This hedge looks counter intuitive in the face of the existing strength in the FO market. However, we have given some weightage to the same and only commenced hedging at below -$ 1.00 /bbl as compared to lower levels earlier. Leaving it totally unhedged runs counter to the philosophy of hedging.
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.