Crude prices fell about 5% Tuesday, snapping a four-day rally, as commodities from oil to gold sold off after the International Monetary Fund slashed its world growth forecasts for 2022 and next year due to runaway inflation and other economic challenges caused by Russia’s invasion of Ukraine.
Brent crude futures settled down $5.91, or 5.2%, at $107.25 per barrel. It fell more than $6 earlier, to a session low of $106.81.
WTI crude futures settled down $5.65, or 5.2%, at $102.56. The session low for WTI was $101.55.
The two crude benchmarks had gained about 15% over four previous days of trading, rallying on expectations of a greater supply squeeze in Europe as Western nations mulled the possibility of a full import ban of Russian oil and gas to add to Moscow’s punishment over its role in the Ukraine conflict.
Tuesday’s slump in oil came as the IMF said in an update of its World Economic Outlook that global gross domestic product, or GDP, will likely expand by only 3.6% this year and next. That was a downgrade of 0.8 percentage point and 0.2 percentage point, respectively, from the IMF’s previous GDP outlook published in December.
Not only did the IMF revise down its GDP outlook; it also raised its inflation expectations to an average of 5.7% this year across advanced economies, and 8.7% for emerging economies, citing inflation and other challenges from the Russia-Ukraine crisis. That was 1.8 points and 2.8 points higher, respectively, from its previous inflation forecast.
The International Energy Agency has warned that roughly 3.0 million barrels daily of Russian oil could be shut in from May onward due to sanctions, or buyers voluntarily shunning Russian cargoes. Russian oil output has continued to slide in April, declining by 7.5% in the first half of the month from March, the Interfax news agency reported on Friday.
API DATA
Crude stocks dropped against expectations of a build. This was, however, offset by a build in product stocks. We expect official data to shed more light on the situation today.
At a global level, the death toll from the COVID-19 virus rose to 6.23 Million (+2,330 DoD) yesterday. The total number of active cases fell by 660,000 DoD to 41.77 million. (Click here for details).
The cash differentials for 180-cst HSFO rose by 65 cents to a premium of $40.15 per tonne to Singapore quotes, the highest level in more than two years. The refining margin for naphtha plunged to $101.53 a tonne, the lowest since June 2021, from $128.43 in the last session.
“Naphtha feedstock demand is expected to face further headwinds as thinning margins have prompted some petrochemical producers to reduce operating rates again,” Refinitiv Oil Research said in a note.
The May crack is lower at -$ 0.95 per barrel
Asia’s gasoline crack edged lower on Wednesday after Middle Eastern stocks increased, although the downside remained limited on growing Indonesian demand.
The crack eased to $15.05 a barrel from $15.15 in the last session. Gasoline markets have shed over 9% so far this week in anticipation of resurgent supplies from China in the face of dwindling local consumption due to COVID-19-related curbs.
Stocks of light distillates at Fujairah Oil Industry Zone climbed by 1.522 million barrels to 4.932 million barrels in the week to April 11, according to S&P Global Commodity Insights.
The May crack is lower at $18.85 per barrel.
Click Here for a graphical depiction of Global Gasoline stocks by region.
Asia’s cash premiums for jet fuel climbed on Tuesday buoyed by expectations for firmer demand in the coming months, while the front-month spread for the aviation fuel in Singapore remained in backwardation.
Cash differentials for jet fuel rose to a premium of $2.28 a barrel to Singapore quotes, compared with a $2 premium a day earlier.
Refining margins, or cracks, for jet fuel were at $31.17 per barrel over Dubai crude during Asian trading hours, compared with $33.70 a barrel on Monday.
The May/June time spread for jet fuel traded at $5.80 per barrel, as against $6.30 a barrel on Monday, Refinitiv Eikon data showed.
Air passenger traffic in Singapore reached 400,000, or 31% of pre-COVID levels, in the week to April 17, 18% higher compared with a month ago, the Civil Aviation Authority of Singapore (CAAS) said on Monday. “Traffic volume increased for all major markets, with particularly strong growth for traffic to and from Australia, Malaysia, Indonesia and Thailand,” the CAAS said in a statement.
The May crack for 500 ppm Gasoil is higher at $40.55 /bbl with the 10 ppm crack at $41.55 /bbl. The regrade is at -$8.0 /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) slipped on Tuesday, while cash premiums for the marine fuel grade fell on a weaker deal in the physical market.
The front-month VLSFO crack fell to $22.67 per barrel against Dubai crude during Asian trading hours, compared with $23.85 per barrel a day earlier.
The front-month time spread for VLSFO widened its backwardated structure on Monday to trade at $25 a tonne, compared with $24.50 per tonne on Monday.
Cash differentials for Asia’s 0.5% VLSFO were at a premium of $20.92 a tonne to Singapore quotes, down from $22.16 per tonne on Monday.
Meanwhile, Asia’s cash premiums for 380-cst high sulphur fuel oil (HSFO) surged to $25.31 per tonne to Singapore quotes, a fresh peak since November 2019. They were at a premium of $24.58 per tonne on Monday.
The cash differentials for 180-cst HSFO rose by 65 cents to a premium of $40.15 per tonne to Singapore quotes, the highest level in more than two years.
The May crack for 180 cst FO is lower at $0.50 /bbl with the visco spread at $5.05 /bbl.
Click Here for a graphical depiction of Fuel Oil stocks by region.
We would recommend buying the regrade (Kero – Gasoil 10 ppm) for May at current levels of -$9.00. The rationale for this is that while Air travel is still looking upwards (China notwithstanding), the Gasoil cracks continue to look stretched and likely to return to some more reasonable levels. We would like to stress that this is not really a hedge. It is more of a strategic trading position.
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.
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.