Oil Price Digest 25-May-17

Crude Oil

Crude closed marginally lower yesterday notwithstanding supportive stock data reports from the EIA. Brent settled $0.19 lower at $53.96 per barrel and WTI settled $0.11 cents lower at $51.36 per barrel.

The primary reason for this seemingly lacklustre reaction to bullish data out of the EIA seems to be the overhang of today’s final OPEC meeting today to decide the period of extension of production cuts. The market has priced in an extension of 9 months.  As of last night, there appeared to be some doubts about achieving consensus on 9 months.  Having said that, there may not be an issue in extending cuts by 6 months in November next year, so, a failure to report a 9 month cut should not have huge repurcussions.

On the bullish side, OPEC held out the hope that other countries would participate in the control of crude supply in order to bolster prices.

On the bearish side, we have an increase in production coming in from the  Brent basin as some new fields are coming on line this month.

In its weekly report yesterday, the DOE reported that crude stocks fell by 4.4 million barrels.  Gasoline stocks fell by 788 KB, while Distillate stocks also fell by 585 KB

While the draw in crude and distillates was more than expected, the draw in gasoline was less than expectations. The draw in crude can be attributed to both a drop in imports of 300 kbpd combined with a hike in run rates to 93.5%.

Gasoline demand grew week on week by 300 kbpd.  However, year on year, demand has dropped by 60 kbpd.  The lack of demand growth is what is likely to put the biggest spoke in the case for a price hike.Gasoline stocks too are extremely comfortable being at a higher level than last year.

Crude production has risen to 9.32 mbpd and is likely to rise further.

We therefore continue to remain sceptical about the impact of the supply cuts.

The Naphtha physical market weakened further yesterday with deals being reported at a premium of $1-$2 for H1 July cargos (CIF Japan)

The June Japan Naphtha- Dubai crack was however unchanged at -$1.80 /bbl.

Gasoline

Gasoline cracks eased out today as supplies from China seemed to appear to counter imports out of India

The June crack is valued at $ 10.50 /bbl today.

Distillates

Gasoil cracks continued to stay firm.  The June crack is still valued around  $ 10.60 /bbl. The regrade too appears firmer at 50 cents/bbl.

Fuel Oil

Fuel oil cracks recovered strongly today in the Platts window. The June 180 cst crack is higher at -$ 3.20 / bbl. The visco spread is valued around $ 1.20 /bbl.

The extension in production cuts is likely to be supportive of Fuel Oil cracks as the cuts are normally applied to heavy crude, thereby limiting the supply of Fuel Oil.

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