U.S. crude prices settled lower on Thursday as uncertainty about trade overtook bullish news about production cuts. Brent crude oil futures gained 24 cents to settle at $61.89 a barrel, while WTI crude futures fell 44 cents to settle at $53.79 a barrel.
U.S. President Donald Trump said on Thursday he would either strike a very big trade deal with China or “postpone” it, which sent oil traders scrambling to sell in the last day of trading for the March contract. Talks between China and the US, which resumed in Washington on Wednesday, are aimed at easing a months-long tariff war between the world’s top two economies. There is little indication that Beijing will address core U.S. demands in the talks. If the two sides cannot reach a deal soon, Washington has threatened to more than double tariffs on Chinese goods on March 2.
The uncertainty overtook bullish sentiment driven by production cuts from OPEC+ group. OPEC oil supply has fallen in January by the largest amount in two years, as Saudi Arabia and its Gulf allies over delivered on the group’s supply cutting pact while Iran, Libya and Venezuela registered involuntary declines.
We are of the opinion that the risk remains to the downside on Crude Oil prices unless the US makes significant concessions to China.
As of now, the sanctions on Venezuela appear bleak. But let us remember that China has invested in Venezuela so these sanctions could be levied to tighten screws on China. If the talks fail, then China would be hurt even more in growth terms.
The market yesterday took heart from the Fed going to be slow on interest rate hikes. But the slackening of speed itself implies that growth is in danger.
Asia’s open specification naphtha price for first half March was $10.50 higher than first half April on Thursday, the highest inter-month premium since June 2018, while the crack level was at a one-month high due to tighter supplies.
Delays in cargoes arriving in Asia from the West, including Europe, was a key factor behind the stronger prices and cracks. The stronger fundamentals were reflected in this week’s cargoes sold out of India.
ONGC and its subsidiary MRPL garnered higher premiums for cargoes sold on late Wednesday to Petro Diamond. MRPL sold 35,000 tonnes for March 16-18 loading from New Mangalore to the Japanese trader at premiums of nearly $20 a tonne to Middle East quotes on a free on board (FOB) basis. This was the highest premium MRPL has achieved since it sold a cargo last year for August 2018 loading. ONGC sold 35,000 tonnes to Petro Diamond for Feb. 8-9 loading from Mumbai at premiums slightly above $18 a tonne level. This was the highest ONGC had achieved for a naphtha cargo sold out of Mumbai since July 2018.
The February crack has eased further to -$ 5.90 /bbl.
Asia’s gasoline crack stayed at a discount for the third straight week due to oversupply across regions of Europe, Asia and the United States.
Singapore onshore light distillates stocks fell 160 KB barrels from the previous week to 15.65 million barrels in the week to Jan. 30. However, this was just 2.8 percent below the record high levels on Jan. 2.
The prospect of drastic run cuts to curb gasoline production remains remote, as weak gasoline cracks are offset by strong middle distillates margins.
The February crack has dropped to -$ 1.40 /bbl
Click Here for a graphical depiction of Global Gasoline stocks by region.
Cash discounts for 10ppm gasoil were at 42 cents a barrel to Singapore quotes on Thursday, compared with a discount of 34 cents per barrel a day earlier.
Jet cash discounts were at $1.42 a barrel to Singapore quotes on Thursday, compared with a discount of $1.55 a barrel on Wednesday. Cash discounts for jet fuel narrowed to their smallest in over two weeks, buoyed by expectations for a tighter market going forward as some refineries in the region are scheduled to go for spring maintenance.
The February/March time spread for the aviation fuel narrowed for the fourth consecutive session to a discount of 40 cents a barrel on Thursday, their slimmest in three weeks. They were at a discount of 57 cents on Wednesday.
Singapore onshore middle distillates stocks fell 573 KB barrels from the previous week to 11.82 million barrels in the week to Jan. 30.
The February crack has dropped to $ 13.00 /bbl with the 10 ppm crack at $13.95 /bbl. The regrade has jumped to $ 1.35 /bbl.
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel oil cracks continued their ascent on Thursday, climbing to record highs amid expectations of tightening near term arbitrage supplies into Singapore.
The February 180 cst fuel oil crack to Dubai crude widened its premium on Thursday, climbing to a nearly two month high of plus 83 cents a barrel from 76 cents a barrel in the previous session. Similarly, the more actively traded 380 cst barge crack to Brent crude for February firmed to minus $4.11 a barrel, up from minus $4.15 a barrel on Wednesday. The 380 cst barge crack to Brent is at its narrowest since Nov. 27.
Singapore onshore fuel oil stocks rose by 478 kb to 20.29 million barrels, a six week high in the week ended Jan. 30, buoyed by higher net fuel imports.
The February 180 cst crack has eased to $ 0.95 / bbl with the visco spread at $ 0.30 /bbl.
Click Here for a graphical depiction of Fuel Oil stocks by region.
Fuel Oil cracks continue to stay strong. ln the meanwhile, strong buying in Cal 20 cracks has pushed the Jet crack close to $ 20 / bbl. We shall wait for that number to be crossed before laying on the next tranche.
The Cal 20 distillate cracks have risen as well. We will hedge Jet at levels in excess of $ 20 /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.