Crude oil futures finally gave way to the onslaught of relentless product builds notwithstanding extensive production cuts. Brent lost $2.81 to settle at $ 53.11 / bbl. WTI lost $2.86 cents to settle at $ 50.28 /bbl. These are the lowest levels crude prices have seen this year. The immediate cause for the drop was the stock data released by the EIA
This drop has seen crude prices break a lot of technical supports and a close today at similar or lower levels could well put a temporary cap in place.
This morning crude futures have risen by close to 50 cents. This rise has been attributed to a report that OPEC compliance last month has been 140%. We unfortunately remain cynical. If we are saying that this build has occured notwithstanding this level of ‘compliance’, then the situation would appear far bleaker to us, because US crude production impact is yet to hit the markets in full.
Furthermore, reports that this cut is having an impact on balancing the markets is not sitting well with the fact that both Saudi Arabia and Iraq have reduced prices significantly for March loading light cargos, ostensibly to cut out US competition.
Having said the above, a case could well be made for stating that floating inventory, which was supported by market contango, could be making its way into US storage. Therefore, the cuts have in effect achieved their objective of reducing crude overhang. Now, if winter demand (resulting in draws of distillate stocks continues), you may see a rebound. However, this is a medium term view rather than something happening overnight.
Stock Data
The EIA reported a huge stock build of 8.2 million barrels of crude taking crude stocks up to 528 Million barrels.
The build was largely concentrated in PADD 5.
The counterpoint to this is that products, particularly gasoline have been dropping significantly over the past couple of weeks. Gasoline stocks stood at 249.3 MB and distillate stocks at 245.2 MB.
Refinery runs were marginally lower at 85.9%.
The major concern of the market would be gasoline stock levels. While these still appear comfortable, sitting as they are at the top of a 5 year average stock band, we could see crude stocks draw down as we go into the driving season.
The first major market outcome would be the improvement of the US gasoline crack. If that stimulates refinery runs, we could then see crude inventory draws.
This is provided, of course, that OPEC maintains its production cuts.
Naphtha cracks have improved marginally today. The March MOPJ crack is valued at $ 0.40 / bbl. The Singapore crack for March is valued at – $ 1.10 /bbl.
Gasoline
Gasoline continued to improve. Both March and April cracks are valued at $ 11.00 /bbl. The huge drop in stocks also should create optimism for further improvement.
Middle Distillates
Gasoil prices have marginally eased. The March crack is now at $12.1 / bbl. The regrade is slightly better at -$ 0.85 /bbl.
The bull play being led by Petrochina seems to be having its effect on Fuel Oil cracks. Alternatively, it could be the huge drop in crude prices. We would tend to think it is the former as the April May time spread is narrowing. The March crack is valued -$ 3.6/bbl and April around -$ 3.5/bbl.
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.
Disclaimer : All the views are the author’s personal views. These do not constitute an advice to buy or sell any commodity
