Oil prices rose for a fifth day on Wednesday following a larger-than-expected drop in U.S. inventories. Brent crude rose 54 cents to settle at $65.17 a barrel. WTI crude futures gained 58 cents to settle at $58.63 a barrel.
Brent posted a monthly decline of 2.1%. WTI crude futures inched up 0.2% in July.
After its two-day policy meeting, the U.S. Fed cut interest rates, citing concerns about the global economy and muted U.S. inflation. The central bank signaled a readiness to lower borrowing costs further if needed. The Fed said the rate cut should help return inflation to its 2% target but that uncertainties about that outlook remain.
Libya’s Sharara oilfield, the country’s largest, shut after a problem on Tuesday with a valve on the pipeline linking it to the Zawiya oil terminal. State-owned National Oil Corp (NOC) declared force majeure on loadings of the crude grade on Wednesday.
OPEC oil output hit an eight-year low in July as a further voluntary cut by top exporter Saudi Arabia deepened losses caused by U.S. sanctions on Iran and outages elsewhere in the group. Saudi Arabia’s oil production fell to 9.6 MMB/D in July and will stay below 10 MMB/D in the coming months, a Saudi oil source told Reuters on Wednesday.
In its monthly report, the EIA said U.S. crude oil output in May slipped from a monthly record high, falling 26,000 bpd to 12.11 million bpd.
Backwardation in Brent has, to a large extent, evaporated, signaling a well-supplied market despite OPEC-led output cuts and U.S. sanctions on oil producers Iran and Venezuela. Meanwhile,
U.S. and Chinese negotiators wrapped up a round of trade talks on Wednesday without visible signs of progress and put off their next meeting until September.
U.S. crude stockpiles fell for a seventh straight week, slumping 8.5 million barrels last week, far exceeding expectations for a decrease of 2.6 million barrels.
At 436.5 million barrels, U.S. crude inventories were at the five year average for this time of year. The drawdown came even as offshore production restarted as the effects of Hurricane Barry waned, with output rebounding to 12.2 million barrels per day, near recent levels, from 11.3 million bpd a week earlier.
Gasoline stocks fell 1.8 million barrels, while distillate stockpiles dipped by 894,000 barrels.
Our material balance report suggests that the draw in crude stocks may have been considerably exaggerated.
Given that production increased by 900 kbpd and net imports increased by 350 kbpd, this kind of draw is somewhat counterintuitive. A similar situation can be seen in gasoline.
Asia’s naphtha crack rose on Wednesday for a fourth straight session to $32.40 a tonne, the highest since July 15 as ongoing demand supported the market.
The August crack is higher at -$ 6.00 /bbl
No fresh news on the gasoline markets. Light distillate inventories in Fujairah rose by 241 KB to 7.72 million barrels
The August crack is lower at $ 6.95 / bbl
Click Here for a graphical depiction of Global Gasoline stocks by region.
Cash premiums for 10 ppm gasoil were at 21 cents a barrel to Singapore quotes on Wednesday, compared with 23 cents per barrel a day earlier.
Middle distillate inventories in the Fujairah Oil Industry Zone dropped marginally by 6,000 barrels from a week earlier to about 2.1 million barrels in the week to July 29. Stocks of middle distillates in the Fujairah oil hub have averaged 2.1 million barrels so far in 2019. This compares with a weekly average of 2.8 million barrels in 2018. Compared with year-ago levels, weekly Fujairah middle distillate stocks were about 22% lower.
Cash differentials for jet fuel were at a premium of 35 cents a barrel to Singapore quotes on Wednesday. The premiums hit 38 cents per barrel in the previous session, levels not seen since May last year.
The August crack for 500 ppm Gasoil is higher at $ 16.40 /bbl with the 10 ppm crack at $ 17.30 / bbl. The regrade is at +$ 0.30 /bbl
Click Here for a graphical depiction of Global Distillate stocks by region.
The backwardated structure in the front-month 380-cst fuel oil market on Wednesday set another record for the eighth time this month. The front-month Aug/Sept 380-cst time-spread was trading at a premium of about $39.25 per tonne on Wednesday. This is up from plus $35.25 a tonne in the previous session and above the previous record of $35.75 a tonne on July 11.
Inventories for heavy distillates and residues in Fujairah dropped 14% in the week to July 29, down by 1.359 million barrels from the previous week to a more than five-month low of 8.436 million barrels. Compared with year-ago levels, the weekly fuel oil inventories at FOIZ were 18% lower. Fuel oil stocks at FOIZ have averaged 9.929 million barrels so far in 2019. This compares with a weekly average of 7.9 million barrels in 2018.
The August 180 cst crack has jumped to + $ 5.30 / bbl with the visco spread at $ 1.60 /bbl.
Click Here for a graphical depiction of Fuel Oil stocks by region.
As the September FO crack has moved into positive territory, we will hedge a tranche at these levels. We will also consider hedging the Cal 20 10 ppm Gasoil crack above $ 19 / bbl.
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.