Oil prices fell about 2 percent on Wednesday as a surprise increase in U.S. crude stockpiles fed concerns about global oversupply, while markets worried that trade tensions could hit energy demand. Brent crude futures fell $1.82 to settle at $72.39 a barrel. U.S. West Texas Intermediate (WTI) crude futures fell $1.10 to settle at $67.66 a barrel..
China said it would hit back if the United States takes further steps hindering trade, as the Trump administration considers slapping a 25 percent tariff on $200 billion worth of Chinese goods.
Russian oil production last month was on average above the level Moscow promised following the Organization of the Petroleum Exporting Countries and non-OPEC meeting in June, energy minister Alexander Novak indicated on Wednesday. Novak said that higher production was due to the need to maintain the market’s stability. His comments indicate that Russia was producing above the level announced by Moscow after the OPEC+ meeting in June. Last month, Novak had said that Russia may surpass the 200,000 bpd level of increases if there is a need for it.
A Kuwaiti official said the country increased production in July by 100,000 bpd from June’s average.
Saudi Arabia’s production also grew 230 kb/d to 10.65 mb/d in July as reported by Bloomberg, nearing the all-time high recorded in 2016.
The build of 3.8 million barrels was less than that reported by the API. The DOE also reported a healthy draw in gasoline as compared to a small build by API. However, a reasonable build in distillates would have provided much relief to the stock position which has been appearing stressed for now.
The crude build can be attributed almost entirely to a sizeable drop in exports which more than made up for the increase in crude consumption and absence of increase in import (which could be due to the non operation of the Syncrude facility). Crude production dropped marginally, which we believe could be due to rounding off issues on marginal fluctuation in production.
The distillate build is attributable to a fairly dramatic drop in demand of over 550 kb/d. The gasoline draw appears to be contradicted by the material balance statement above. For more charts on the DOE data, click here
Asia’s naphtha physical crack for second-half September at $116.95 a tonne on Wednesday was the lowest front-month value in a week as spot purchases were mostly muted for now.
The balance August crack has improved to $ 1.10 /bbl.
Asia’s gasoline crack fell to a 1-1/2 week low of $7.36 a barrel.
Japan’s gasoline stocks fell 320,000 barrels to 9.32 million barrels in the week to July 28, despite slightly higher refinery run rates averaging 88.8 percent compared to 88.3 percent in the previous week.
Light distillates inventories in the Fujairah Oil Industry Zone (FOIZ) fell 668 KB from a week ago to 5.74 million barrels in the week ended July 30. Stocks are 11% lower than last year.
The balance August crack has dropped to $ 8.90 / bbl
Click Here for a graphical depiction of Global Gasoline stocks by region.
Asia’s cash differentials for 10ppm gasoil climbed to their highest in over a month on Wednesday on improving market sentiment as the prompt-month spread widened its backwardated structure. Cash premiums for gasoil with 10 ppm sulphur content rose to 5 cents a barrel to Singapore quotes, up from a 1 cent premium on Tuesday. The Aug/Sept spread for 10ppm gasoil was at a premium of 20 cents a barrel on Wednesday, the highest since mid-June.
Jet cash premiums were at 11 cents a barrel to Singapore quotes, compared with 12 cents a barrel on Tuesday. The aviation fuel market would likely remain supported in the short term, but is not expected to see any significant upward momentum until the beginning of the fourth quarter, when winter heating demand for kerosene will start picking up.
Middle distillates inventories in the Fujairah Oil Industry Zone (FOIZ) fell 1.2 percent from a week ago to 2.68 million barrels in the week ended July 30. Compared with year-ago levels, the weekly Fujairah middle distillate inventories were about 33 percent lower. .
The balance August crack has however, fallen further to $ 13.40 / bbl with the 10 ppm crack at $ 14.30 /bbl. The regrade has dropped to $ 0.65 /bbl
Click Here for a graphical depiction of Global Distillate stocks by region.
The front-month fuel oil crack to Brent crude firmed on Wednesday amid few signs of easing supply constraints over the near term. While the strong demand in the Middle East is expected to ease with the passing of summer months, shrinking Iranian fuel oil exports due to U.S. sanctions and shipping disruptions along the Red Sea may keep a lid on resupplies into Singapore.
The September 380-cst barge crack to Brent crude was trading as high as minus $7.65 a barrel on Wednesday before easing to about minus $7.95 a barrel. By comparison, the crack on Tuesday settled at minus $8.20 a barrel.
Fuel oil inventories at the Fujairah Oil Industry Zone (FOIZ) climbed to a fresh 2018 high of 10.322 million barrels in the week ended July 30. Fujairah fuel oil stocks were last higher in the week to Dec 11 at 10.664 million barrels. Compared to the week before, Fujairah fuel oil inventories were up 1.3 percent, or 135,000 barrels. Compared with the same time last year, Fujairah fuel oil inventories were 5 percent lower, the narrowest year-on-year deficit since the week to May 21
The balance August 180 cst crack is stronger at -$ 0.40 / bbl with the visco spread at $ 1.10 /bbl
Click Here for a graphical depiction of Fuel Oil stocks by region.
The fuel oil cracks continue to remain strong. As an ongoing hedging policy though, we would recommend hedging the Q4 fuel oil crack at current levels of -$ 2.25 /bbl. We have entered this hedge at much higher levels than we did the Q3 crack. At this stage we are not at all sure that this will end up in the money or not. But a hedge is basically an insurance. Which is something we need to keep reminding ourselves.
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.