Oil Price Digest 12-Jan-22

Oil prices jumped 4% on Tuesday as longs in the market bet on a supply squeeze from anticipated demand, even as weekly inventory data from the U.S. Energy Information Administration could show another uptick in fuel stockpiles.

Brent crude futures settled up $2.85, or 3.5%, at $83.72 per barrel. Brent peaked at a two-month high of $83.93 during the session.

WTI crude futures was up by $2.99, or 3.8%, to settle at $81.22 per barrel. WTI earlier hit $81.58, its highest since the November peak of above $85. WTI was expected to climb from last year’s average of $68.21 to $71.32 this year, the EIA said.

Brent is expected to average $75 per barrel this year, up $4 from its 2021 average, the EIA said in its STEO report. WTI was expected to climb from last year’s average of $68.21 to $71.32 this year, the EIA said. On the supply side, the EIA also forecast that US oil production was expected to reach a record average of 12.4 million barrels daily by next year as output catches up with  the slowdown caused by the coronavirus pandemic and projected that crude shipped by the OPEC+ alliance of global oil producers will rise by 2.5 million from last year to average 28.8 million barrels daily this year and 28.9 million in 2023.

api data

Crude stocks grew less than expected. We believe that the build reported in gasoline is essentially the API playing catch up with the DOE. We await the official data later today.

At a global level, the death toll from the COVID-19 virus rose to 5.52 Million (+8,232 DoD) yesterday. The total number of active cases rose by 2.0 million DoD to 46.8 million. (Click here for details).

Asia’s naphtha crack was steady on Tuesday, after falling more than 19% last week due to easing demand from petrochemical units. The refining profit margin rose to $137.68 a tonne, up 25 cents from the last close.

“Persistently poor petrochemical margins have prompted at least three South Korean petrochemical producers to deepen run cuts at their ethylene crackers at the start of this month to 70-80%,” Refinitiv Oil Research said in a note.

The February crack is higher at $2.75 per barrel. 

The gasoline crack was little changed above $10 a barrel. Most countries in the region have not imposed mobility-related curbs to combat Omicron cases amid high vaccination rates, but a massive rise in cases across the world dented demand sentiment.

The refining profit margin improved to $10.72 a barrel, up 19 cents from Monday’s close. 

The February crack is higher at 11.80 /bbl.

Click Here for a graphical depiction of Global Gasoline stocks by region.

Asia’s cash differentials for jet fuel rose to their highest premiums in three weeks on Tuesday, while the prompt-month spread for the aviation fuel in Singapore widened its backwardated structure.

Cash premiums for jet fuel jumped to 57 cents per barrel to Singapore quotes, the highest since Dec. 21, while the Jan/Feb time spread traded at 51 cents per barrel on Tuesday. Refining margins or cracks for jet fuel dipped 8 cents to $12.55 per barrel over Dubai crude during Asian trade on Tuesday.

The jet fuel market, however, is expected to remain under pressure in the near term as surging Omicron cases around the world continue to dampen aviation demand, trade sources said.

Global scheduled flight seats have dropped 7.2% in the week to Monday, compared with the week before, while airlines have removed 8.7 million seats from their overall January capacity in the last week, according to aviation data firm OAG.

An additional 8.3 million seats were also removed from the February-March schedule, OAG said.

China’s flight capacity inched up 1.5% in the week to Monday, but seat capacity in India and Japan this week were down 6% and 4%, respectively, OAG data showed.

“While the impacts from Omicron remain far from certain, what is clear so far is that domestic and international air travel booking have taken a hit in December setting the stage for continued weakness in air travel for Q1 2022,” Fitch Solutions said in a note.

Emerging data pointing to less severity and hospitalisation rates, however, would likely open the door to renewed air travel in the coming quarters, analysts at Fitch added.

The February crack for 500 ppm Gasoil is higher at $14.10 /bbl with the 10 ppm crack at $15.10 /bbl. The regrade is at -$0.85 /bbl.

Click Here for a graphical depiction of Global Distillate stocks by region.

Asia’s 0.5% very low-sulphur fuel oil (VLSFO) market strengthened on Tuesday as tight finished-grade supplies steepened its near-term backwardation structure, trade sources said.

The prompt-month Jan/Feb VLSFO time spread jumped to a one-month high of $23 a tonne, while the Feb/March time spread climbed to a near two-week high of $18.25 a tonne, Refinitiv-Eikon data showed.

“There’s not enough finished ready 0.5 material available,” said Matt Stanley, Dubai-based oil broker at Starfuels.

“The main thing is that in December the arrivals to Singapore were mainly high sulphur, the lower sulphur fuels were snapped up by Japan and Korea so there is a general lack of blendstocks hence the higher backwardation,” Stanley added.

Trade sources said they expected the VLSFO market structure to ease towards the end of the first quarter of this year.

At the start of the year, the VLSFO market structure sold off, with the front-month time spread sinking to near two month lows, on profit taking and amid thin trade volumes, trade sources said.

Firming deal values and stronger buyer bids also helped lift VLSFO cash differentials to a near two-week high of $15.39 a tonne to Singapore quotes on Tuesday.

The February crack for 180 cst FO is lower at  -$7.45 /bbl with the visco spread at $1.30 /bbl.

Click Here for a graphical depiction of Fuel Oil stocks by region.

No fresh action for today.   

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