After spending most of the day in the $57.50 to $ 58.25 range, Brent collapsed like a house of cards to finish the day $ 1.35 lower at $55.47 /bbl. WTI too finished similarly lower at $ 52.33 /bbl, down $1.39 /bbl.
Various reasons are being given for this huge drop which can be enumerated as
- Profit Taking on the huge rise at the end of last year
- Tremendous surge in the strength of the US Dollar on the back of strong economic data
- Prediction of a warmer than expected winter which caused a huge slump in Natural Gas prices
- Other bearish indicators such as an increase in the Baker Hughes rig count, possibility of increased production in Nigera and Libya, the announcement by Iraq that one of its fields was unable to meet the cut it had promised.
Our view remains that any rise in price needs to be demand driven rather than supply driven. Even at cut production levels there is ample supply to meet the world’s needs and if people outside the ambit of the cuts oversupply then there will be only be a glut.
Physical Naphtha was strong with many buyers emerging for supplies. The January crack should be around the same levels as yesterday at around $ 0.4 / bbl.
The gasoline crack for January slumped significantly to under $ 13 / bbl. without too much change in the physical market. We believe demand for gasoline should be on the increase if mild winters are seen as promised.
The gasoil crack for January also dropped by around 50 cents to $ 11.5 / bbl. With milder winter, the regrade has come in to $ 0.70 /bbl . Going forward, we expect the regrade to ease further and refiners should seriously considere hedging March regrade which is currently showing a value of around $ 1 / bbl
Supplies appeared to be tight in the window which indicated good immediate strength. Stocks to the extent of 1.5 million tons are expected to arrive in January with a further 1.7 million tons expected from late January to February. This compares with around 400 tons in Decemeber. The crack is valued at around -$1.35 /bbl for January and -$2.0 for February.
Refiners who have held off till now, should seriously consider putting on some cover for February and March.
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