The story of yesterday was “OPEC delivered an ‘oil cut’ in its statement”. OPEC announced that from January 2017, it would restrict production to 32.5 MBpd. The market duly cheered it by climbing to fresh, month long highs. The February Brent future settled at $ 51.84 / bbl. This is not shown in the graph below as the January future expired yesterday. Yesterday’s up move was the largest one day move since February.
What actually cheered the markets was the details of the agreement. Saudi agreed to cut production by 486 Kbpd. Iraq agreed to cut production by 210 Kbpd. OPEC agreed to let Iran increase production by 97 Kbpd.
This agreement is subject to non OPEC producers cutting production by around 600 Kbpd with Russia being expected to take up half this cut.
While there is going to be an obvious watch on the ‘implementation’ of this agreement, we find a small flaw in this agreement. The agreement was reached by suspending Indonesia, who had a quota of 740 kbd (production of 727 Kbpd in October) freeing up this amount to be shared among other members. This means that the production levels are effectively 33.2 MBpd which is almost as good as no cut
We do not expect the market to take a long time to find and digest this anomaly, so crude appears to be headed for a volatile time at best.
The news we regard as slightly more bullish than this is reported drop in US crude inventiories by 0.88 Million barrels. However, even that is tempered by rises of 2.1 Million barrels in Gasoline inventories and nearly 5 Million in distillate inventories.
We would recommend that people holding high stocks of crude hedge their inventory at these prices.
Physical Naphtha continued to recover which market sources attributed to a weak Brent. Having said that, the crack has softened considerably which could be attributed to the hike in crude prices
The December crack is showing a value of just around $ 0.9 /bbl
The Gasoline crack for December continued to hover just over $11.0 / bbl for December.
The physical gasoil market was thin yesterday with the volatility in the crude market keeping traders away.
Oil sales in Japan hit a 34 year low for the month of October. Kerosene sales were about 1.2% lower than the previous October as weather was much warmer.
However, a cold December is anticipated.
The Gasoil crack for December is showing a value of $10.5 / bbl
The regrade is at virtually the same levels with December being valued at $ 1.80 / bbl and January at $ 1.70 /bbl.
Fuel Oil trading too was quiet in the midst of yesterday’s crude oil volatility. The 8% rise in crude prices has hurt the crack.
The 180 cst fuel oil crack for December dropped drastically to a value of around -$ 0.80 to -1.00/bbl. The value for the January crack was at – $ 1.70 to -$2.00/ bbl . The values will take some time to settle in the wake of the jump in crude prices.
Having said that, the market in Asia seems to show the following signs
- Supplies of on spec fuel in Singapore are tight.
- Inventories however appear to be comfortable
- Long term supplies of fuel oil appear to have reduce
- However, traders report Fujairah as awash with fuel oil
In the light of this data, we still believe that these are good levels to sell the current crack levels.
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.