Oil Price Digest 21-Dec-21

Oil prices oscillated wildly before settling down 3-4% lower on Monday.

Brent crude futures settled down $2, or 2.7%, at $71.52 a barrel, after a session high of $72.44 and bottom of $69.29.

WTI crude futures  settled down $2.63, or 3.7%, at $68.23 a barrel, after oscillating between a session peak of $69.53 and low of $66.14.

OPEC+ compliance with oil production cuts stood at 117% in November, up 1 percentage point from the previous month, two sources from the group told Reuters, as output continues to lag agreed targets.

Death rates remained unalarming, provoking angry reactions from those opposed to fears over the pandemic, including the so-called anti-vaxxers and bulls across energy markets who view the new demands, safeguards and restrictions put on society as a conspiracy to kill this year’s oil rally.

“Lockdown fears may create more fear than reality,” says Phil Flynn, energy analyst at Chicago’s Price Futures Group and an avowed oil bull, said in a commentary. “This week the US should see more oil draws and products should tighten. Yet we have to wait until Tuesday until we see that data. Before that, with light holiday volume, we might run on fear.”

The markets continue to oscillate between greed and fear thanks to the uncertainties created by the Omicron variant.

At a global level, the death toll from the COVID-19 virus rose to 5.38 Million (+4,939 DoD) yesterday. The total number of active cases rose by 100,000 DoD to 23.06 million. (Click here for details).

Omicron infections are multiplying rapidly across Europe and the United States, doubling every two or three days in London and elsewhere and taking a heavy toll on financial markets, which fear the impact on the global economic recovery.

British Prime Minister Boris Johnson said on Monday he would tighten coronavirus curbs to slow the spread of the Omicron variant if needed, after the Netherlands began a fourth lockdown and other European nations considered Christmas restrictions. “It also looks increasingly likely that the UK will reimpose restrictions sometime after Boxing Day (Dec 26), with daily cases moving to record highs,” analysts from JBC Energy wrote in a note on Tuesday.

U.S. health officials urged Americans on Sunday to get COVID-19 booster shots, wear masks and be careful if they travel over the winter holidays, with the Omicron variant raging across the world and set to take over as the dominant strain in the United States.

Asia’s naphtha crack plunged on Monday after a 3% slump in crude oil benchmarks dragged prices lower. The refining profit margin fell to $155.58 a tonne, down $5.12 from the last close.

The upside to naphtha demand could be capped by persistently weak downstream margins, which has led to a small drop in run rates at some local crackers, Refinitiv Oil Research wrote in a report.

The January crack is higher at $ 5.35 /bbl.

Asia’s gasoline crack traded steadily above $11 a barrel as market players weighed the impact of a surge in Omicron cases in Europe and the United States on fuel demand. The crack settled 30 cents lower at $11.56 per barrel.

The January crack is higher at $12.60/ bbl.

Click Here for a graphical depiction of Global Gasoline stocks by region.

Asian refining margins for 10 ppm gasoil slipped to their lowest in over a week on Monday, despite weaker feedstock crude prices, as traders were concerned the fast-spreading Omicron coronavirus infections would likely threaten short-term demand.

Refining margins, also known as cracks, for 10 ppm gasoil dropped to $12.84 a barrel over Dubai crude during Asian trading hours, the lowest since Dec. 9. They were at $13.24 per barrel on Friday.

“With a closed east-west arbitrage, diesel cargoes heading to the West have thinned in recent weeks amidst ample supplies in Europe,” said Serena Huang, Asia lead analyst at Vortexa. This was partially casting a bearish outlook on Asia’s gasoil cracks in the short-term, she added.

The front-month exchange of futures for swaps (EFS) traded around minus $7.75 a tonne on Monday, a level that typically makes the arbitrage unworkable.

Cash premiums for gasoil with 10 ppm sulphur content fell 5 cents to 57 cents per barrel to Singapore quotes on Monday, while the Jan/Feb time spread or the fuel grade narrowed its backwardation by 8 cents to trade at 54 cents per barrel.

China’s diesel exports in November plunged 69% from a year ago as refineries prioritised domestic supply to ease a fuel crunch, while gasoline exports also dropped. Diesel shipments were 600,000 tonnes last month, though that was up from 560,000 tonnes in October, data from General Administration of Customs showed on Saturday. State-backed oil refineries have raised oil processing rates and increased output of diesel amid a supply crunch of the fuel in recent months.

The January crack for 500 ppm Gasoil is lower at $11.80 /bbl with the 10 ppm crack at $12.80 /bbl. The regrade is at -$0.90 /bbl.

Click Here for a graphical depiction of Global Distillate stocks by region.

Asia’s front-month crack for 0.5% very low-sulphur fuel oil (VLSFO) rose on Monday, buoyed by tighter regional supplies.

The front-month VLSFO crack climbed to $15.39 per barrel against Dubai crude during Asian trading hours, compared with $15.28 per barrel on Friday.

Cash premiums for Asia’s 0.5% VLSFO, however, dipped to $16.66 a tonne to Singapore quotes, down from $17 per tonne at the end of last week.

Meanwhile, Asia’s cash differentials for 380-cst high sulphur fuel oil (HSFO) were at a premium of $2.26 per tonne to Singapore quotes on Monday, compared with $2.55 a tonne in the previous session.

The January crack for 180 cst FO is higher at  -$5.55 /bbl with the visco spread at $1.40 /bbl.

Click Here for a graphical depiction of Fuel Oil stocks by region.

No fresh trades today.   

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 refinery.

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