Crude OilCovid StatsNaphthaGasolineDisitllatesFuel OilHedge Strategy

Oil prices took a hit for a fourth time in five days, with traders warning that the U.S. crude benchmark could even slip beneath the key $60-per-barrel support, on fears that existing vaccines in the market may not be able to stop the spread of Covid’s newly-discovered Omicron strain.

Brent crude futures settled settled down $2.87, or almost 4%, at $70.57 per barrel. Brent has lost nearly 11% since its last positive close of $82.31 a week ago. It is also down 19% from its seven-year high of $86.70 attained in mid-October.

WTI crude futures settled down $3.47, or 5%, at $66.18 per barrel, after an intraday low at $64.44. WTI has lost almost 16% since its last positive close of $78.50 on Nov. 23. It is also down nearly 23% from the seven-year high of $85.41 notched in mid-October.

Crude futures ended November with their biggest monthly declines since the outset of the pandemic, as the new variant, along with expectations that coming emergency reserve releases will juice growing supply, has cut the legs out of the market’s year-long rally. For November, Brent fell by 16.4%, while WTI fell 20.8%, the biggest monthly fall since March 2020.

Tuesday’s plunge in oil came after the chief executive of drugmaker Moderna predicted that existing vaccines will be much less effective at tackling Omicron than earlier strains of coronavirus and warned it would take months before pharmaceutical companies could manufacture new variant-specific jabs at scale.

Also pressuring prices, Federal Reserve Chair Jerome Powell said the U.S. central bank likely will discuss speeding its reduction of large-scale bond purchases at its next policy meeting, amid a strong economy and expectations that a surge in inflation will persist into the middle of next year.

Activity in later-dated futures contracts shows that the market is becoming less worried about demand outstripping supply in the short term, and of oversupply in the first half of next year. Brent’s six-month backwardation narrowed to around $1.50 per barrel, the lowest since March. WTI’s six-month backwardation fell to about $1.90 per barrel, its lowest since September.

It is unclear if the OPEC+ group, which is meeting today, will put on hold plans to add 400,000 barrels per day (bpd) to supply in January. The group was already weighing the effects of last week’s announcement by the United States and other countries to release emergency crude reserves to temper energy prices.

api data

The API data showed a lower draw for crude stocks than was expected, while both gasoline and distillate stocks grew more than expected. We await the official data today.

At a global level, the death toll from the COVID-19 virus rose to 5.22 Million (+5,375 DoD) yesterday. The total number of active cases rose by 80,000 DoD to 20.24 million. (Click here for details).

The heavily mutated and potentially more contagious new variant, first reported in southern Africa, has now been detected in several countries including Australia, Belgium, Britain, Canada, Denmark, France, Germany, Hong Kong, Israel, Italy, and the Netherlands.

Asia’s naphtha crack rose to a two-week high of $157.70 per tonne, from $149.98 in the previous session. The elevated crack levels could be due to a severe drop in crude prices.

The December crack is lower at $ 4.05 /bbl.

The gasoline crack rose to a four-session high of $7.77 a barrel from $6.71 in the previous session. Gasoline margins have shed most gains in November after doubling in the last two months. The elevated crack levels could be due to a severe drop in crude prices.

The December crack is higher at $8.85/ bbl

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

Cash differentials for gasoil with 10 ppm sulphur content  were unchanged at a premium of 25 cents per barrel over Singapore quotes.

Refining margins for 10 ppm gasoil climbed to $9.82 a barrel over Dubai crude during Asian trading hours, compared with Friday’s $9.45 per barrel, which was the lowest since Sept. 9.

Cash differentials for Jet rose by 15 cents to a premium of 35 cents over Singapore quotes.

Asian jet fuel refining margins inched up on Tuesday as feedstock crude prices slumped, but the cracks held close to their weakest levels in over 2-1/2 months as the new Omicron coronavirus variant threatens a recovery in air travel.

Refining profit margins, also known as cracks, for jet fuel were at $7.10 per barrel over Dubai crude during Asian trading hours, compared with Monday’s $6.92 a barrel, which was the lowest since Sept. 15. 

The December crack for 500 ppm Gasoil is higher at $8.90/bbl with the 10 ppm crack at $ 9.90 /bbl. The regrade is at -$ 1.20 /bbl. 

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

Asia’s 0.5% very low-sulphur fuel oil (VLSFO) cash differential marked nine sessions of uninterrupted gains on Tuesday, climbing to a near two-year high amid persistent supply concerns.

The VLSFO cash premium jumped to $21.80 a tonne to Singapore quotes on Tuesday, up from $20.13 a tonne on Monday and its highest since early-February 2020.

In the paper market, falling crude oil prices helped lift the front-month VLSFO to $14.27 a barrel above Dubai crude on Tuesday, up from a one-week low of $14.14 on Monday and closer to a nine-month high of $14.99 on Nov. 24.

The December crack for 180 cst FO is lower at  -$6.75 /bbl with the visco spread at $1.20 /bbl.

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

No Fresh trades today. However, we would like to take the opportunity to highlight the reason for risk management today. We had some time ago recommened hedging gasoil cracks in excess of $15.00/barrel. Those who had done similar trades would be really grateful for their sagacity.

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.

Disclaimer : All the views are the author’s personal views. These do not constitute an advice to buy or sell any commodity

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