Crude prices suffered their biggest daily rout since the 1991 Gulf War on Monday as top producers Saudi Arabia and Russia began a price war that threatens to overwhelm global oil markets with supply.
Brent crude futures fell $10.91, or 24.1%, to settle at $34.36 a barrel. WTI futures fell $10.15, or 24.6%, to settle at $31.13 a barrel.
The front month Brent contract fell by as much as 31% earlier in the day to $31.02, its lowest since Feb. 12, 2016. Similarly, WTI had earlier dropped 33% to $27.34, also the lowest since Feb. 12, 2016. Monday marked the biggest one-day percentage decline for both benchmarks since Jan. 17, 1991, when oil prices fell a third at the outset of the U.S. Gulf War. Trading volumes in the front-month for both contracts hit record highs.
Energy stock prices have also fallen sharply, and shale producers began cutting spending in anticipation of lower revenues.
Over the weekend, the world’s largest oil exporter engaged in an all-out price war on Saturday by slashing pricing for its crude by the most in more than 30 years. Saudi Arabia plans to boost oil output next month to well above 10 million barrels a day, as the kingdom responds aggressively to the collapse of its OPEC+ alliance with Russia, according to Bloomberg.
Global oil demand is set to contract in 2020 for the first time in more than a decade, the IEA said on Monday. It expected oil demand to be 99.9 MB/D in 2020, lowering its annual forecast by almost 1 MB/D and signaling a contraction of 90 KB/D
At a global level, the death toll from the COVID-19 in rose to 4027 (+197 DoD) yesterday, with the total number of confirmed infections at 114,422 (+4,345 DoD). The growth factor of new cases rose to 1.13 from 0.98 yesterday.(Click here for details).
China’s producer prices in Feb’20 fell 0.4% YoY, official data showed on Tuesday, swinging back into deflationary territory as the coronavirus outbreak hit business activity, while consumer prices rose 5.2% YoY, compared to a 5.4% increase in Jan’20.
Saudi Arabia’s sudden lurch to an aggressive discount exporter will bring harsh financial pain for higher cost rivals such as Russia and the US, analysts said. At least four refiners in Asia have already signed up for maximum volumes of newly-cheap Saudi crude.
Asia’s naphtha crack fell to a three-session low of $41.60 a tonne on Monday but the intermonth spread flipped to a discount for the first time since September 2019 as uncertainties abound.
The April crack has jumped to positive territory at +$0.10 / bbl.
Asia’s gasoline crack hit a near two-week high of $6.58 a barrel.
The April crack is higher at $7.10 /bbl
Click Here for a graphical depiction of Global Gasoline stocks by region.
Asian refining margins for 10ppm gasoil rose to more than a three-week high of about $12 a barrel on Monday while jet fuel crack was around a three-week high of $9.65 a barrel as crude oil prices tumbled.
The April crack for 500 ppm Gasoil is higher at $11.60 /bbl with the 10 ppm crack at $ 12.25 / bbl. The regrade is at -$ 1.75 /bbl.
Click Here for a graphical depiction of Global Distillate stocks by region.
Asia’s front-month 0.5% VLSFO crack slipped to a premium of $9.90 a barrel against Brent crude, down from $10.21 a barrel on Friday , amid concerns of sluggish bunkers’ demand. By contrast, the weaker crude prices helped lift the front-month 380-cst barge HSFO discount against Brent crude to its narrowest in over seven months at minus $9.63 a barrel, up from minus $10.14 a barrel in the previous session.
The April crack for 180 cst FO has jumped to -$3.40 /bbl with the visco spread at $0.80 /bbl.
Click Here for a graphical depiction of Fuel Oil stocks by region.
With the markets having become a little less volatile today, it may be possible to hedge cracks at today’s levels. While the sudden jumps in crack levels may have been due to a steep fall in crude prices, a part of this jump would also be attributable to low pricing making consumption of products more acceptable. We would put the following hedges in place today.
- Naphtha-Dubai Apr-20 at +$0.10 /bbl
- 10 ppm Gasoil – Dubai Apr-20 at $ 12.25 /bbl
- 180 cbl
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.