Crude Oil
Oil prices fell on Friday as concerns about surging U.S. output and falling demand in China weighed on the market. Brent crude futures dropped 86 cents to settle at $76.46 /bbl. WTI futures fell 21 cents to settle at $ 65.74 /bbl
For the week, WTI logged a small loss of 0.1%, its third weekly decline. Brent shed 1.1% to log its 2nd second decline in three weeks.
China’s May crude imports fell 1.05% to 39.05 Million tons while oil product exports surged 19% to 6.13 Million tons. On a year to date basis, crude imports are up 8% year on year while product exports are up 31.3%.
Russia increased oil output to 11.1 mb/d during the first week of June, exceeding the OPEC+ stipulations for the first time, according to Interfax.
Fresh comments from global oil producers for additional signals on whether they plan to exit their current production-cut agreement will remain at the forefront of the oil market in the week ahead.
US Drillers added 1 oil rig last week bringing the count up to 862.
Hedge funds and other money managers cut their bullish bets on U.S. crude futures in the week ended June 5, the U.S. Commodity Futures Trading Commission (CFTC) said.
Channeling the energy
For the second week, Brent puts in what the candlestick experts call, a spinning top. Typically periods of indecision, a pause in the trend, marked by wide high-lo ranges and very small open-close ranges.
In the week under review, Brent posted a high of 77.61/bbl (below the earlier week high of 78.75/bbl) and a low of 73.81/ bbl (breaking below earlier week’s low of 74.49/bbl). But close-to-close, the commodity ended almost flat.
For two weeks now, Brent holds the lower end of the over 3-month old rising channels, offering buying support all along. The 77.61/bbl high puts a short position in play. We expect the channell supports to break for a test of targets at 71-72/bbl. Note this short position is only to play a down swing within a larger uptrend. We expect Brent to move much higher after a consolidation in the 71-78/bbl range.
Naphtha
Asia’s naphtha crack fell for a fourth straight session to $80.68 a tonne on Friday, making this the lowest front-month value since April 26 as strong oil prices dragged. However, fundamentals were strong as demand was firm and these were reflected in the spot premiums which ranged in the mid to high teens to C&F Japan quotes.
The balance June crack is higher at -$ 2.55 / bbl
Gasoline
Asia’s gasoline crack recovered 3.1 percent to $6.59 a barrel after the value hit a one-month low in the previous session. However, the current value was still 37 percent below the crack from a year ago.
The balance June crack has improved to $ 8.74 / bbl.
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Discounts on Asian cash differentials for jet fuel widened on Friday after inventories for the aviation fuel in the Amsterdam-Rotterdam-Antwerp (ARA) storage hub climbed to their highest levels this year. Cash differentials for jet fuel were at a discount of 12 cents a barrel to Singapore quotes, compared with a discount of 11 cents a barrel on Thursday.
Cash differentials for 10ppm gasoil were at 24 cents a barrel to Singapore quotes, one cent up from Thursday.
The balance June crack is marginally higher at $ 13.35 / bbl with the 10 ppm crack at $ 14.20 /bbl. The regrade is higher at $ 0.45 /bbl
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
Asia’s fuel oil market trended lower this week after climbing to multi-month highs in the past week, but sentiment remained bullish on expectations of low arbitrage supplies in June and July. While fuel oil cracks traded higher this week, cash premiums of the 380-cst fuel oil, front-month time spreads and arbitrage spreads ended the week lower.
Cash premiums of 380-cst fuel oil snapped five straight sessions of declines on Friday, climbing 19 cents a tonne from the previous session to $2.06 a tonne to Singapore quotes on Friday.
The prompt-month 380-cst time spread was also lower last week at $3.25 a tonne on Friday, down from a five-month high of $4.50 a tonne on Monday. By contrast, the front-month 180-cst crack to Dubai crude strengthened slightly this week, settling at minus $3.33 a barrel on Friday from minus $3.41 a barrel on Monday. On Wednesday, the 180-cst crack was at its narrowest in 1-1/2 years at minus $2.32 a barrel.
The balance June 180 cst crack is higher at -$ 3.25 / bbl. The visco spread has widened to $ 1.65 /bbl.
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
We would recommend that end users of naphtha hedge 2Q19 by buying the crack at a value of -$2.34 / bbl. There is a caveat that if buyers go to the market, they may not find that value since the far forward market in a product like naphtha is illiquid. However, if one does get such value, it would generally be beneficial to lock it in.
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.