Crude Oil
Oil prices fell on Wednesday after U.S. crude inventories rose last week by the most since 2016, while gasoline demand suffered its biggest weekly drop ever due to the coronavirus pandemic.
Brent crude futures fell $ 1.61 to settle at $ 24.31 /bbl. WTI futures fell 17 cents to $20.31 a barrel.
Russian President Vladimir Putin called on Wednesday for global oil producers and consumers to address “challenging” oil markets while U.S. President Donald Trump complained that oil cheaper “than water” was hurting the industry.
The bearish mood has been fueled by a rift within the Organization of the Petroleum Exporting Countries (OPEC). Saudi Arabia and other OPEC members have been unable to agree to a technical meeting in April to discuss sliding prices.
Saudi Arabia’s crude supply rose on Wednesday to a record of more than 12 MB/D, two industry sources said, despite a plunge in demand triggered by the coronavirus outbreak and US pressure on the kingdom to stop flooding the market.
The scale of demand destruction caused by the coronavirus pandemic is “well in excess of the oil industry’s capacity to adjust,” the IEA warned Wednesday, adding that the ferocity of the current crisis had never been matched in the history of the oil market.
Oil traders are storing as much as 80 MB of oil on tankers at sea, with further ships being sought as land storage sites fill up fast due to a global glut of stocks, shipping industry sources say. Storage tanks in the UAE’s Fujairah bunkering and oil hub in the Middle East have reached full capacity for both crude and oil products, three industry and trading sources told Reuters on Wednesday.
China has increased US crude purchases with some buyers snapping up cargoes at the widest discounts ever as sellers seek to offload excess supplies in Asia, six trade sources said on Wednesday.
EIA data
The rise in crude inventories of 13.8 million barrels last week is the largest one-week rise since 2016. This is attributable to the drop in run rates to 82.3%. The last time they were lower at this time of the year was in 2009. Exports also dropped by 695 kbpd to 3.16 mbpd.
The rise in gasoline stocks is attributable to the drop in gasoline demand which fell by the most ever in one week by 2.2 million barrels per day to 6.7 million bpd. This more than offset the drop in gasoline production of 1.5 million bpd.
The draw in distillate stocks is largely attributable to an increase in exports coupled with a rise in demand.
The material balance suggests an overstatement of both builds and draws. However, in these turbulent times, it is not easy to infer anything from these differences.
Covid 19
At a global level, the death toll from the COVID-19 virus rose to 47,245 (+5,087 DoD) yesterday, with the total number of confirmed infections at 935,957 (+100,065 DoD). (Click here for details).
Naphtha
Asia’s naphtha crack dropped 220%, flipping into a discount for the first time in a week and hit minus $23.60 a tonne, lowest since December 2008.
The April crack has jumped to -$3.50 / bbl.
The May crack is at -$5.50 / bbl.
Gasoline
Asia’s gasoline crack plunged by more than 230% to hit a discount of $6.78 a barrel, lowest since December 2008. Light distillate stocks in Fujairah rose by 100 kb to 6.1 million barrels in the week to March 30, data via S&P Global Platts showed. Stocks of light distillates in the Fujairah oil hub have averaged 6.7 million barrels so far in 2020, compared with a weekly average of 8.5 million barrels in 2019.
The April crack has also jumped to -$2.45 /bbl
The May crack is at -$4.20 /bbl
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Cash differentials for jet fuel were at a discount of $2.84 per barrel to Singapore quotes on Wednesday, compared with a discount of $2.96 per barrel a day earlier.
Cash discounts for 10 ppm gasoil widened to 81 cents per barrel to Singapore quotes on Wednesday, a level not seen since December 2018. They were at a discount of 76 cents a barrel on Tuesday.
Middle-distillate inventories in Fujairah rose 23.9% to 2.3 million barrels in the week to March 30, data via S&P Global Platts showed. Stocks of middle distillates in the Fujairah oil hub have averaged 3.1 million barrels so far in 2020, compared with a weekly average of 2.4 million barrels in 2019. The weekly Fujairah middle distillate stocks were about 13% higher than a year earlier.
The April crack for 500 ppm Gasoil has improved to $10.95 /bbl with the 10 ppm crack at $ 12.45 / bbl. The regrade is at -$ 7.50 /bbl.
The May crack for 500 ppm Gasoil is at $8.70 /bbl with the 10 ppm crack at $ 9.70 / bbl. The regrade is at -$ 6.20 /bbl.
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
Asia’s 0.5% VLSFO time spread narrowed on Wednesday, while cash discounts for the marine fuel grade widened amid weaker buying interests for physical cargoes.
The April/May time spread for VLSFO traded at a discount of $7 per tonne on Wednesday, compared with minus $8 a day earlier.
The VLSFO cash discount widened to $4.53 a tonne to Singapore quotes on Wednesday, compared with a discount of $3.74 a tonne in the previous session.
The front-month VLSFO crack dropped to $7.92 per barrel above Brent crude during Asian trade on Wednesday, down from $9.55 per barrel on Tuesday.
Fujairah inventories for heavy distillates and residues rose 8.8%, or 1.2 million barrels, from the previous week to 14.5 million barrels, data via S&P Global Platts showed. Compared with year-ago levels, the weekly fuel oil inventories at Fujairah were 45% higher. Fuel oil stocks have averaged 12.6 million barrels this year, compared with a weekly average of 10.8 million barrels in 2019, Reuters calculations showed.
The April crack for 180 cst FO has once again jumped to $3.20 /bbl with the visco spread at $0.85 /bbl.
The May crack for 180 cst FO is at -$0.30 /bbl with the visco spread at $0.90 /bbl.
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
We will add to the FO 180cst crack hedge for May 2020 at today’s level of -$0.50 per barrel. This jump in prices could be due to a combination of rapid drops in crude prices combined with a shortage in the prompt. Both states are not likely to last long.
We also are a bit optimistic that the end of the Covid 19 crisis is not too far. And just to back our optimism, we are recommending the purchase of the June-2020 Jet crack at $ 2.45 / bbl. This is really an optimistic hedge and in conjunction with our 3Q20 Jet crack which too we shall purchase at today’s level of $ 3.60 /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 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.