Crude Oil
Crude prices retraced on Monday giving up more than they had gained on Friday. Brent closed $ 1.28 lower at $ 62.45 /bbl whereas WTI lost 89 cents to settle at $ 57.47 /bbl
The major reason for the drop would seem to be profit taking in the face of multiple cautionary signals appearing over the weekend.
Fundamentally, US production has always raised a question mark to the theory of rebalancing. While bears wondere if the markets would rebalance at all, there is no doubt that current oil supply is not much lower than around this time last year thanks to rise in US production coupled with Nigerian and Libyan production increases.
There is no doubt that these high prices make increase in US production a lot more feasible economically and we can see the rig count resume growth. US production for the whole of November has been at 9.5 mb/d which is close to its peak output of 9.6 mb/d in 1970.
In addition, the record length in fund positions would present a liquidation risk on exit. Net length in Brent futures and options rose by 120,000 lots. The ratio of long positions to short positions is a sobering 8.5, the second highest level on record after February 21 of this year.
In other news, Iraq’s southern crude oil exports from its Persian Gulf terminals rose 159 kbpd to reach 3.5 mbpd in November, the highest in almost a year. This comes as Iraq tries to offset losses in production from the Kurdistan region in the North. On a country-wide basis, Platts estimates that Iraq’s November exports were 3.78 mbpd, compared to 3.76 mbpd in September (i.e. before the Kurdistan scuffle)
Markets would be looking to API data released late today for further direction. Initial estimates show analysts expect a 3.507 million drop in crude supplies, a 548,000 barrel build in distillates and a 1.145 million barrel gain in gasoline supplies.
Naphtha
The Naphtha physical crack settled marginally higher on Monday at $ 117.85 / MT. Demand for Naphtha continues to appear firm. Having said that, the Naphtha market is extremely volatile and such a sustained good performance by Naphtha is rare. Premiums for physical contracts for delivery in first half of January 2018 are reportedly slipping into high single digits now from low double digits the previous fortnight.
Reliance is reported to have taken advantage of the situation and conclude term contracts with two buyers for 2018. Prices are reported to be at mid teen premiums to Middle East quotes for material to be lifted on FOB basis from their port at Sikka.
The December crack for now is slightly lower at $ 3.75 /bbl.
Gasoline
The Asian gasoline crack continues to perform disappointingly, settling at $ 9.88 / bbl on Monday. The draw downs in stock in both Singapore and the ARA region were not sufficient to excite traders as we head into off season times.
The December 92 Ron paper crack, is valued lower at $ 11.50 /bbl. This is over $ 1/bbl lower than where we had recommended selling.
Distillates
The front-month time spread of Asia’s 500-ppm gasoil flipped into backwardation on Monday, boosted by tighter inventories and firm demand. However, increased gasoil supplies from key producers including Russia, China and India could limit further upside. Indications of a rebound in Russian ultra-low sulphur diesel (ULSD) exports in December are emerging
The December 0.05% Gasoil crack has dropped quite a bit t0 $12.55 /bbl. The regrade has fallen further to $ 0.70 /bbl.
Fuel Oil
The backwardated structure of Asia’s front-month time spreads for 180-cst and 380-cst fuel oil traded lower at the start of week as expectations of ample near-term supplies weighed. While arbitrage volumes from northwest Europe to Asia are expected to slow in December and January, these would be offset by increased flows from elsewhere including Asia, Latin America and the Middle East. Lower supplier offers, as well as limited buying interest, for physical cargoes of 180-cst and 380-cst fuel oils weigh on cash premiums of both fuel oil grades
The crack is valued marginally higher at – $ 3.20 for December. The visco spread has narrowed to $ 0.65 /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.
Disclaimer : All the views are the author’s personal views. These do not constitute an advice to buy or sell any commodity