Crude OilNaphthaGasolineDisitllatesFuel OilHedge Strategy

Oil prices extended their slide on Wednesday, led lower by worries that the global economy would slow further with renewed restrictions to curb COVID-19 in China.

Brent futures for October due to expire on Wednesday, settled at $96.49, down $2.82 a barrel, or 2.8%. The more active November contract lost $2.20 to $95.64 a barrel. For all of August, Brent fell 12.3%, marking a third straight monthly loss after declines of 4.2% in July and 6.5% in June.

WTI settled down $2.09, or 2.3%, at $89.55. In the previous session, WTI tumbled 5.5%. For August, it fell 9.2%, after a drop of 7.2% in July and 7.4% in June.

“The weakness coming out of China has played a significant role” in lowering prices, said Harry Altham, energy analyst for EMEA & Asia at StoneX Group in London. “There are fears of demand destruction across the West as interest rates rise and inflation concerns grip Western economies.”

China’s factory activity extended declines in August due to new COVID infections, the worst heat wave in decades and an embattled property sector that weighed on production, suggesting the economy will struggle to sustain momentum.

The 23-nation OPEC+ — comprising the original 13 members of the Saudi-led Organization of the Petroleum Exporting Countries and their 10 Russia-led allies — said Wednesday it agreed with Riyadh on the disconnect in pricing between crude futures and the physical oil market.

However, OPEC+  also gave hyped-up demand estimates for its oil, suggesting that supply reduction — which Saudi Energy Minister Abdulaziz bin Salman cited as a possibility last week — was the last thing the alliance was thinking of right away.

It reduced its 2022 oil surplus estimate by half to 400,000 barrels per day while forecasting a 300,000 bpd deficit for 2023.

A White House official said President Joe Biden spoke with Israeli Prime Minister Yair Lapid on Wednesday on the revival of a 2015 nuclear deal that is eagerly sought by Iran and strongly opposed by Israel.

Both OPEC and the United States saw production hit its highest levels since the early days of the coronavirus pandemic, with OPEC’s output hitting 29.6 million barrels per day (bpd) in the most recent month, according to a Reuters survey, while U.S. output rose to 11.82 million bpd in June. Both are at their highest levels since April 2020.

Speculation over OPEC+ cuts and the Iran nuclear deal aside, oil was supported from going any lower after a third straight weekly drop in U.S. crude stockpiles reported by the Energy Information Administration.

DOE data

The DOE data continued to remain supportive, with draws across the board and a mild uptick in gasoline demand..

Asia’s naphtha crack staged a mild recovery yesterday, settling at a a discount of $103.93 a tonne to Brent, the lowest level since June 15, from a discount of $103.93 in the last session.

The September crack is higher at -$ 22.55 per barrel 

Asia’s refining profit margin for gasoline flipped to a discount on Wednesday amid the darkening fuel demand outlook from China.

The crack traded at a discount of 2 cents a barrel, down from a premium of $3.42 a barrel a day earlier.

Light distillates stocks at Fujairah Oil Industry Zone dropped to lowest since July 25 to 7.273 million barrels for the week ended Monday, S&P Global Commodity Insights data showed.

The September crack is lower at -$0.15 per barrel.

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

Asia’s refining margins for gasoil with 10 ppm sulphur content snapped a three-session losing streak on Wednesday, supported weaker crude prices and bigger-than-estimated decline in U.S. stocks.

Cash differentials for 10 ppm gasoil stood at a premium of $2.20 a barrel to Singapore quotes, up from $2.01 in the previous session.

Refining margins or cracks for 10 ppm gasoil rose to $49.21 a barrel over Dubai crude in Asian trading hours, compared with $47.84 on Tuesday.

Cash differentials for jet rose to a premium of $2.58 a barrel to Singapore quotes, up from a premium of $2.18 a barrel in the previous session.

Refining margins or for jet rose to $49.21 a barrel over Dubai crude in Asian trading hours, compared with $41.54 in the previous trading session.

Stocks of middle distillates at the Fujairah Oil Industry Zone rose by 216,000 barrels to a three-week high of 3.024 million barrels in the week to Aug. 29, S&P Global Commodity Insights data showed.

The September crack for 500 ppm Gasoil is lower at $40.45 /bbl with the 10 ppm crack $45.45 /bbl. The 10 ppm regrade is at -$6.60 /bbl.

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

Asia’s cash premium for very low sulphur fuel oil (VLSFO) has tumbled more than 90% compared to the start of the month as the market became awash with supply.

The 0.5% VLSFO cash premium fell $2.02 to a premium of $3.97 per tonne on Wednesday, sliding for ten consecutive sessions. The premium was at $46.83 at the start of August.

Downstream bunker fuel premiums have also come under pressure, with some bunker traders saying premiums have now fallen back to levels last seen in the first quarter, following a rally in the second quarter.

The front-month VLSFO/Dubai refining crack has also weakened, averaging $25.50 per barrel in August, versus $15.15 per barrel in July.

The high sulphur fuel oil has also softened in recent trading sessions, with the 380-cst HSFO cash premium sliding back into single digits over Singapore quotes towards the end of August.

Fujairah Oil Industry Zone (FOIZ) inventories for heavy distillates and residues rebounded 11% from the previous week to 11.68 million barrels (1.84 million tonnes) in the week ended Aug. 29, latest data from S&P Global Commodity Insights showed.

The September crack for 180 cst FO is lower at – $23.80 /bbl with the visco spread at $3.60 /bbl.

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

No fresh trades for today.

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.

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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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