Crude Oil
Crude jumped higher on the last day of September on reports of China’s Sinopec Corp halving loadings of crude oil from Iran this month, as the state refiner comes under intense pressure from Washington. . Brent crude November future contract rose $ 1.00 /bbl to settle at $ 82.72 a barrel. The more active December contract settled $ 1.35 higher at $82.73 a barrel. WTI crude futures rose $ 1.13 to settle at $73.25 a barrel.
In the third quarter, Brent has gained about 4 percent. The WTI contract is up about 5 percent this month but down around 1 percent for the quarter.
However, India, another top buyer, is committed to buying oil from Tehran, the Iranian foreign minister said.
Saudi Arabia is expected to add oil to the market to offset the drop in Iranian production. US President Trump reported once again spoke to the Saudi Arabian government about high oil prices over the weekend.
Amid concerns about supply shortages, hedge funds raised their combined futures and options position in New York and London by 3,728 contracts to 346,566 in the week to Sept. 25.
The Baker Hughes rig count in the US showed a decline of 3 oil rigs bringing the number of active rigs down to 863.
Up Up and away……
Prices tested the long standing barrier of $ 80.50 for the fourth week in a row and, this time, broke through spectacularly for a new high of $82.72. The weekly bar with a short top spindle and no tail whatsoever shows a strong bullish temperament with a break out buy written all over it
Having said the above, the oscillators are cautioning with bearish divergences writ large in their values particularly in the MACDs. The RSI too is in strongly overbought territory.
Trading Strategy
Our last weeks shorts were taken out on the first day of the week itself. For now, we are waiting on the sidelines. We would buy off supports seen from the rising channel which prices broke out of in the last week.
Supports and Resistances
The first support is seen at $ 81.80 off the rising channel, then at $ 81.20 and below at $ 80.50 the previous high.
Since we are in largely uncharted territory, resistances are a bit hard to pinpoint. We see the first resistance in the $ 83.75 area and then at around $ 84.50.
For larger charts see our Technical Views page
Naphtha
The front-month Asia naphtha crack rose on Friday for the third day, this time by 3.18 percent to reach $104.43 a tonne, the highest since Sept. 4 as demand emerged and prices of heavy full-range naphtha in South Korea returned to premiums.
The October crack is higher at -$ 0.45 /bbl
Gasoline
Asia’s gasoline crack eased to a two-session low of $7.49 a barrel.
Gasoline stocks held in the ARA refining and storage hub jumped nearly 13 percent to a seven-week high of 982 KT.
The October crack is lower at $ 9.15 / bbl
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Asia’s cash differentials for 10ppm gasoil slipped to 66 cents per barrel over Singapore quotes, their lowest for this week on Friday following builds in weekly middle distillate stocks. However, sentiments driving the market continued to remain strong.
Gasoil stocks held in the ARA storage hub rose to a six-month high of 3 million tonnes, mirroring a buildup in Singapore middle distillate inventories reported on Thursday. Compared with year-ago levels, gasoil inventories were about 12 percent higher.
Meanwhile, cash discounts for jet fuel , however, widened to 55 cents a barrel to Singapore quotes, compared with a discount of 41 cents on Thursday. Jet fuel inventories in ARA fell 2 percent to 683 KT.
The October crack has dropped to $ 15.50 / bbl with the 10 ppm crack at $ 16.30 /bbl. The regrade is at -$ 0.70 /bbl
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
Ex-wharf premium’s for 380-cst high-sulphur fuel oil (HSFO) bunkers for October delivery were little changed from the previous month in a sign of expectation of relatively tight supply and firm demand for the mainstay shipping fuel. October ex-wharf term premiums for 380-cst HSFO were concluded at about $8-$9 per tonne to Singapore quotes, compared with term premiums of about $7.50-$9.50 per tonne in September.
Swiss trading house Trafigura has merged its global fuel oil and gasoil trading desks ahead of new shipping fuel regulations starting in 2020 set by the United Nations’ shipping agency. Trafigura’s trading desk merger mirrors a similar move by oil-giant BP, which combined its fuel oil and middle distillates desks about four months ago.
Weekly fuel oil stocks in the ARA storage hub jumped 21 percent, or 234 KT, to a total of 1.372 million tonnes in the week ended Sept. 27. ARA fuel oil stocks, which are now at a 12-week high, were boosted by high imports into the region. ARA fuel oil inventories were 6 percent higher than year-ago levels and well above the five-year average of 1.038 million tonnes for this time of the year.
The October 180 cst crack is lower at -$ 3.90 / bbl with the visco spread at $ 1.20 /bbl
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
As the fourth quarter of 2018 commences, we receive values for 4Q, 2019. The distillates continue to look attractive as both, the Jet crack as well as the 10 ppm gasoil crack are displaying values above $ 20.50 / bbl. While a lot is being said about gasoil cracks expanding in the time period with IMO 2020 coming into implementation shortly thereafter, it is prudent to lay on a hedge there. Hence we would recommend a hedge at current levels of $ 20.70 /bbl in Jet and $ 20.55 in 10 ppm Gasoil for 4Q19.
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.