- We have to start with the statement, “The cut has not immediately affected supplies to anybody “
- Having said that, “The cut has got rid of floating stock”. The market contango not supporting the storage of crude any longer, traders have hastened to go light on stocks.
- Production cuts have therefore had the effect of reducing the overhang of crude supply
- US Production has grown far more than anybody anticipated. OPEC producers are having to reduce prices significantly in order to be competitve with grades like Mars from North America.
- Shale Oil Production is going to grow for the rest of the year even if prices fall now as the producers have hedged forward prices for at least the year going ahead.
- The OPEC will not retain cuts to allow the shale oil producers to benefit.
- The smaller countries may be forced to rescind cuts to meet revenue targets in the wake of reduced oil prices.
- If winter is over, demand for heating oil is likely to go down
Our submission is that the rally has stalled for now. Another rally may take place later, but it will have to be driven by demand rather than by reduction of supply.
Naphtha cracks have continued to improve notwithstanding the huge drops in crude. Arguably, the drop in crude prices is making Naphtha a little more affordable. The March MOPJ crack is valued at $ 0.50 / bbl. The Singapore crack for March is valued at – $ 1.0 /bbl.
Gasoline eased marginally. However, April gasoline is now quoting at a small discount to March, a sign of demand in the prompt. With Singapore stocks increasing significantly in the last week, we can only guess that there is a tinge of US stock drops attached to this buoyancy.
The March crack is valued $ 10.90 /bbl while the April crack is valued at $ 10.80 /bbl.
180 CST Fuel Oil
Another huge rise in distillate stocks seems to have had little effect on the bull play in progress
While stocks rose by close to 5% to reach 27.7 MB, the March crack is valued at -$ 3.5/bbl and April around -$ 3.4/bbl both 10 cents firmer than the previous day.
We would recommend selling the April crack in the face of this situation.
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Disclaimer : All the views are the author’s personal views. These do not constitute an advice to buy or sell any commodity