The burning question at this point in time is whether this is merely a correction or whether this is a reversal of trend.
The following facts seem to be pointing towards the latter
- Production cuts have had no impact on demand for crude. The latest API data shows a build of 14.2 million barrels in crude oil stocks. Gasoline built by 2.9 million barrels and distillates built by 1.4 million barrels
- Refinery runs dropped to 87.9%. Which implies that even with lower production rates, product stocks are building i.e. demand seems to be slowing down.
- While compliance may be strong, there are still a few questions
a. The table above shows that production has dropped by 958 KB per day against a pledge of 1.1 MB per day. When is this going to reach 1.6 MB / day which was the initial pledge?b. Russia was going to reduce production by 600 Kb/d. It only cut production by 100 kb/d. And its exports increased. When questioned on the subject, officials said that the pledge was to cut production and not exports. This does not seem to be a good way to meet your objective of bolstering crude oil prices.
The February MOPJ crack is valued at around $ 2.9 / bbl and March at $ 2.25 / bbl. The Singapore crack for February is valued at $ 1.5 /bbl for February.
We would reiterate our recommendation to hedge naphtha for March
The gasoline remained steady. The February crack is valued at $ 12.8 cents /bbl. The March crack is valued at $ 12.35/bbl marginally lower than yesterday
The gasoil crack gained significant value today. However, the regrade continued to slip as well. The February crack is valued at $12.5 /bbl with the Regrade at -$0.40 /bbl.
China’s exports for January were reported to be double that of their exports for January 2016. Therefore, the outlook for gasoil may not be very bullish.
The Fuel Oil crack continued to recover today. However this is a very cautious recovery as traders expect supplies to hit Singapore soon. The February crack was valued at -$ 3.6/bbl and March at -$ 3.8 /bbl.
We would recommend hedging for the month of March as these are still reasonably good levels and if the markets break down, considerable savings can be achieved.
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