Oil futures climbed more than 1 percent on Wednesday to 17-month highs, overcoming a large build in US crude stocks. Brent futures rose $ 1.12 to settle at $71.73 a barrel. WTI futures rose 63 cents to settle at $ 64.61 a barrel.
A flurry of bullish news contributed to this strong performance. First, the crude build was offset by a huge draw in gasoline stocks. An OPEC monthly report released on Wednesday showed that Venezuela’s oil output sank last month to a long-term low below 1 million barrels per day, due to U.S. sanctions and blackouts.
The US and China have agreed to a trade deal enforcement mechanism according to US Treasury Secretary, Mr. Munchkin. The IMF has raised expectations of China’s growth to 6.3% from 6.2% previously in the wake of this and local stimulus.
US Fed minutes show that the door is open for further rate hikes if the economy improves. This is being seen as a sign that the economy will improve or, at least, a change in the outlook for the economy.
U.S. crude stockpiles last week rose to their highest level since November 2017 as imports grew, while gasoline inventories posted the steepest drawdown since September 2017.
Both moves are way in excess of market expectations and, while the gasoline draw can be at least explained in some part by a huge increase in gasoline demand, there appears to be no explanation available for the crude build at least from our material balance statement below.
Gasoline demand actually jumped to 9.8 million barrels per day which is 8% higher than the previous weak and 7% higher than the previous year. In fact, for this time of the year, this represents a record high.
Asia’s naphtha crack rose for the first time in 1-1/2 weeks on Wednesday to reach its highest since April 1 at $49.63 a tonne, supported by gasoline demand and supply disruptions.
The April crack has jumped to -$ 5.70 /bbl. The May crack is at – $ 5.50 /bbl
Asia’s gasoline crack surged nearly 18 percent to $7.95 a barrel, its highest since Oct. 1 2018, mirroring the strength in Europe where its gasoline margin hit its highest level since early September.
Gasoline stocks in Fujairah were 31 kb lower at 11.2 million barrels. Japan’s gasoline inventories were also lower, having fallen 30 kb in the week to April 6 to reach 9.88 million barrels.
A technical glitch that prompted South Korean S-Oil Corp to shut a gasoline-making unit has affected supplies. Supplies were also expected to be disrupted in the Netherlands, where labour strikes started on Monday at Shell’s 404,000 bpd Pernis oil refinery.
India’s Hindustan Petroleum Corp, meanwhile was issuing gasoline purchase tenders, though it was unclear whether the refiner had bought any of the cargoes it was previously seeking through various term and spot tenders.
The April crack has jumped to $ 9.05 /bbl. The May crack is at $ 8.30 / bbl
Click Here for a graphical depiction of Global Gasoline stocks by region.
Cash differentials for gasoil with 10ppm sulphur content were at a discount of 32 cents a barrel to Singapore quotes, compared with a 28-cents discount on Tuesday.
Middle distillate inventories in Fujairah increased by 82 kb to 2.1 million barrels.
Cash discounts for jet fuel were at 25 cents a barrel to Singapore quotes on Wednesday, as against a discount of 29 cents per barrel a day earlier.
The April crack for 500 ppm Gasoil is higher at $ 13.05 /bbl with the 10 ppm crack at 13.55 / bbl. The regrade is steady at – $ 0.40 /bbl
The May crack for 500 ppm Gasoil is at $ 13.70 /bbl with the 10 ppm crack at 14.40 / bbl. The regrade is at – $ 0.25 /bbl
Click Here for a graphical depiction of Global Distillate stocks by region.
Bearish sentiment weighed on Asia’s fuel oil market, with few signs of easing fundamentals in the near term. Sluggish demand for marine fuels and ample arbitrage supplies have weighed heavily on Asia’s fuel oil market over the past month, flipping cash differentials and time spreads from premiums to discounts.
Similarly, rising crude oil prices have helped widen the front-month 380-cst barge crack discount to Brent crude to a three-month low of minus $6.55 a barrel on Wednesday, down from minus $5.99 a barrel in the previous session and minus $4.89 a barrel a week earlier.
Similarly, in a further sign of sluggish current demand, the 380-cst May/June time spread flipped to contango of minus 25 cents per tonne on Wednesday, down from a premium of $1.25 per tonne on Tuesday.
Fuel Oil inventories in Fujairah climbed by 1.74 million barrels to 11.75 million barrels. This level has not been seen since September 2017.
The April 180 cst crack has dropped to – $ 2.80 / bbl with the visco spread at $ 1.35 /bbl.
The May 180 cst crack is at – $ 2.15 / bbl with the visco spread at $ 1.25 /bbl.
Click Here for a graphical depiction of Fuel Oil stocks by region.
While Fuel Oil cracks are crashing, Cal-20 distillates are strengthening Our next target for laying on an hedge would be $ 20.50 / bbl
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.