Crude Oil
Oil continued its hectic rise with WTI settling above $ 50 /bbl for the first time in a long while. WTI settled at $ 51.06 /bbl, a rise of over 3% while Brent settled at $53.94 a rise around 4% over the previous settle of $51.84 / bbl.
Now that the longs have had their fun and hiked crude prices to levels which seem to satisfy the expected levels post the cut, people have started asking questions about the sustainability of such prices. There are many questions such as
- Iran was allocated an increase of 90 Kbpd from a base production level of 3,975 Kbpd. So how come its production post the cut is shown as 3,797 Kbpd?
- Nigeria, Libya and Indonesia have been kept out of this cut. While the last two have been producing pretty much at record levels in October, Nigeria has the capacity to put on at least 200 Kbpd from its October levels of 1,628 Kbpd if they can contain the rebels. So how strong is the agreement if 3 members had to be kept out of it?
- Basis the above it is reasonable to assume that production levels are of the order of 33 Mbpd rather than 32.5 Mbpd as published in the OPEC statement.
- The market has been giving up strength at this level of production with products building in the last three months. So how will this help cut supplies?
- These are basically production cuts. If exports remain at the same levels, how will supply to the world reduce?
- Oil has been in contango for a long time. Which implies that there should be a lot of oil in storage. At higher prices, will this not come out of storage and dampen any perceived shortfalls.?
- Last but not least, the rally in crude markets has hit products like Fuel Oil terribly. The fuel Oil crack for January may have given up as much as $ 2 /bbl over the last couple of days. None of the other cracks have shone either. How will compressed refining margins generate demand for more crude?
We would maintain our recommendation that people holding high stocks of crude hedge their inventory at these prices.
Naphtha
The physical Naphtha crack fell 14% on Tuesday, the combined effect of high prices and easing of supplies.
The December crack is showing a value of flat to Dubai
Gasoline
As mentioned yesterday, gasoline stocks in the US rose by 2.1 Million barrels. In Asia last week, they rose by 1.2 Million barrels. Chinese exports to Singapore were of the order of 588 KT for the month of November, a little higher than its exports of 493 KT in the previous month
The Gasoline crack for December continued to hover just over $11.0 / bbl for December. The January crack is around $ 10.65 /bbl
Middle Distillates
Hin Leong and Winson Oil turned gasoil sellers for the first time after their buying spree since mid September selling over 3 million barrels in the Platts window yesterday. The both of them had purchased gasoil to the tune of 11 million barrels over the last 3 months. There did not appear to have been much movement of gasoil out of the region which would indicate that the material had been held in storage.
Distillate stocks in Asia had increased to nearly 14.9 million barrels which does not augur well for gasoil margins.
The strong gasoil sales may have boosted the regrade which is showing values of around $ 1.80 – 2.0 /bbl in January.
Fuel Oil
On Spec Fuel Oil supplies continued to be of concern as aggressive bids were seen in the window.
However, high prices seem to have really affected the cracks badly with the January crack showing a value of -$3.23/bbl
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.