Crude Oil
Oil prices jumped about 5 percent on Wednesday to their highest levels in nearly a month as U.S.-China trade talks raised hopes of easing tensions between the world’s two largest economies. Brent crude futures rose $2.72 cents to settle at $61.44 a barrel. WTI crude futures rose $2.58 cents to settle at $52.36 a barrel.
OPEC-led crude output cuts also provided support. The sharp gains extended a rally that has pushed futures up about 14 percent in 2019.
U.S.-China trade talks, which were carried over into an unscheduled third day, ended on Wednesday with negotiators focused on Beijing’s pledge to buy “a substantial amount” of agricultural, energy and manufactured goods and services from the United States, the U.S. Trade Representative’s office said.
Saudi Arabia’s energy minister said he was confident that action to rein in output would bring the oil market into balance, adding that he would not rule out calling for further action. Khalid al-Falih also said the kingdom would export 7.1 million barrels per day (bpd) in February, down from 7.2 million bpd in January.
China’s producer price index (PPI) in December rose 0.9 percent from a year earlier, marking the lowest rate since September 2016 and slowing sharply from the previous month’s 2.7 percent increase, the National Bureau of Statistics (NBS) said on Thursday.
Data from the DOE showed domestic crude stockpiles fell less than expected last week.
Gasoline and Distillate inventories rose by 8.1 million barrels and 10.6 million barrels, far more than exceeding analysts’ expectations. The drop in product demand over the last couple of weeks has been the primary reason for the builds. This drop has been severe and probably seasonal for this time of the year. If this demand fails to rise soon, we could soon see distillates at comfortable levels.
The material balance for crude seems to suggest crude should have built substantially rather than dropped marginally. This may show up in the coming weeks. Products too should have built less than reported. While we are not surprised with the build in distillates as we have been constantly remarking about the difference in the past several weeks, the difference in gasoline is a bit surprising.
Naphtha
Weak gasoline fundamentals countered demand for naphtha from the petrochemical industry and brought Asia’s naphtha crack down to a fresh one-month low of $34.60 a tonne. South Korea’s KPIC and Hanwha Total were both seeking naphtha for second-half February delivery.
The January crack has improved to -$ 5.00 /bbl
Gasoline
Asia’s gasoline crack flipped into discounts on Wednesday after holding at a premium for eight straight sessions as high supplies across Europe, the United States, Singapore and the Middle East persisted.
Gasoline traded at a discount of 37 cents a barrel to Brent crude after hitting a nine-week high at a premium of $1.67 on Jan. 4. This mirrored the trend in Europe where its gasoline crack had also returned to the negative zone in the previous day.
There are high inventories of light distillates across Singapore, the United States, the Amsterdam-Rotterdam-Antwerp refining and storage hub and now Fujairah as well.
Data from the Fujairah Oil Industry Zone showed that its light distillates stocks rose to 10.72 million barrels, the highest seen since Nov. 5.
The January crack has dropped to $ 1.50 /bbl.
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Cash discounts for 10ppm gasoil widened to 45 cents a barrel to Singapore quotes, compared with 36 cents a barrel on Tuesday.
Cash differentials for jet fuel were at a discount of $1.31 a barrel to Singapore quotes on Wednesday compared with a discount of $1.33 per barrel on Tuesday.
An expected uptick in holiday travel next month around the Chinese New Year, also known as the Lunar New Year in many parts of Asia, would likely boost aviation demand and offer some relief to the jet fuel market.
The January crack has dropped to $ 13.25 /bbl with the 10 ppm crack at $ 14.20 /bbl. The regrade is steady at $ 1.45 /bbl
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
The front-month 380-cst barge fuel oil crack moved on Wednesday to its narrowest discount to Brent crude in more than one month, despite recent data showing higher inventories of the fuel in key storage hubs and higher crude oil prices. The narrower crack reflected expectations of tighter fuel oil arbitrage volumes in January, compared with December.
The February crack discount was at about minus $6.26 a barrel to Brent crude, up from minus $6.50 a barrel in the previous session. The front-month crack discount is at its narrowest since Dec. 5.
Fuel oil inventories at Fujairah soared 33 percent higher at a near three-month high of 8.25 million barrels in the week ended Jan . 7.
Sluggish demand for bunker fuels in the Fujairah oil hub in recent weeks has, in part, contributed to the rising inventories there. The 2.03 million barrel increase in Fujairah fuel oil stocks in the week to Jan. 7 is the largest weekly volumetric increase in inventories of the fuel there. Fuel oil stocks in Fujairah were last higher in the week to Oct. 22. Fujairah fuel oil inventories were 9 percent lower than the same time last year. Fujairah’s weekly fuel oil stocks averaged 7.897 million barrels (1.179 million tonnes) in 2018.
The January 180 cst crack has improved to $ 0.40 / bbl with the visco spread at $ 0.55 /bbl.
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
This section shall be updated later today.
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.