Crude Oil
Oil prices fell 4% on Wednesday after the World Health Organization said the global coronavirus outbreak is now a pandemic.
Brent crude futures fell $1.43 to settle at $35.79 a barrel. WTI futures fell $1.38 to settle at $32.98 a barrel.
At a global level, the death toll from the COVID-19 in rose to 4,633 (+338 DoD) yesterday, with the total number of confirmed infections at 126,367 (+7,188 DoD). The growth factor of new cases rose to 1.58 from 1.13 the previous day.(Click here for details).
In the midst of this demand destruction, the Saudi energy ministry has directed producer Saudi Aramco to raise its output capacity to 13 mbpd from 12 mbpd currently. UAE national oil company ADNOC also said it would raise crude supply to more than 4 mbpd in April and accelerate plans to boost its output capacity to 5 mbpd, a target it previously planned to achieve by 2030.
Saudi Arabia’s national shipping firm, Bahri, has provisionally chartered up to 19 supertankers this week, with six set to take about 12 MB of Saudi crude to the US, according to data and sources, as Riyadh ramps up shipments amid a price war with Russia.
Freight for east-facing VLCCs loading in the Americas soared 112%, or $7.4 million lump sum, this week and 75%, or $6 million lump sum, Wednesday, echoing a more than doubling of the cost of carrying 2 million barrel cargoes from the Arab Gulf to Northeast Asia.
Russian Energy Minister Alexander Novak said Saudi Arabia’s plans to increase production capacity were “probably not the best option”, adding Moscow had several phone calls with OPEC and non-OPEC members, but that no partners had agreed to its proposal. This week’s oil price rout had become inevitable and cutting output has ceased to make sense because it is unclear how deep the impact of the coronavirus on demand will be, Russia’s deputy energy minister said in an interview with Reuters on Wednesday.
Trading in long-dated Brent futures contracts points to expectations that supply will continue to rise. The current Brent front month contract recently traded at more than $5 below the six-month contract, the biggest discount since January 2016.
Policymakers and central banks have been taking measures to bolster their economies against disruption caused by the coronavirus outbreak, the latest being the Bank of England which unexpectedly cut interest rates by half a percentage point on Wednesday.
However, China’s independent oil refiners are cranking up production as local governments begin to relax strict measures to contain the coronavirus and fuel demand begins to recover.
EIA data
Weekly data on U.S. inventories showed little effect from the coronavirus outbreak. Crude stocks rose by 7.7 million barrels, but inventories of gasoline and diesel fell sharply, as refining runs remain at seasonally low levels.
While demand for both gasoline and distillates has increased substantially, out material balance statement seems to indicate that the draw may have been overstated
As can be seen above, the increase in production and imports of gasoline more than offsets the increase in demand, suggesting that gasoline stocks may have actually increased. While diesel stocks would have drawn the extent of draw is much lower than what has been reported.
Naphtha
Asia’s naphtha crack extended gains to reach a one-week high of $53.45 a tonne, while the intermonth spread jumped six-fold to $6 a tonne premium as more buyers were seen compared to muted spot demand in the previous session.
The April crack has dropped to -$0.55 / bbl.
Gasoline
Asia’s gasoline crack fell from a three-week high to a three-session low of $5.91 a barrel in a choppy market.
China’s independent oil refiners are however cranking up production to 57% by end March, up by over 10% from last week, as local governments begin to relax strict measures to contain the coronavirus and fuel demand begins to recover.
The April crack has dropped to $3.20 /bbl
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Asia’s benchmark 10ppm gasoil cash differential rose three-fold to more than a week high of 30 cents a barrel premium on Wednesday, as China’s economic activities were gradually recovering with more people returning to work.
Although the Qianjiang city in China’s Hubei province said on Wednesday it will continue with strict transportation bans, revoking a policy of relaxation that was announced on Tuesday, manufacturing activities were seen improving elsewhere. About a dozen plants in Shandong are resuming or will hike run rates after steep throughput cuts in February, when the rapid spread of the coronavirus and restrictions on transportation and travel stalled economic activity and fuel sales.
Although jet fuel cracks rose above $10 a barrel, this was mainly due to low oil prices following a price war between Saudi Arabia and Russia. Fundamentally, demand for jet fuel has been weak as people prefer not to travel because of the coronavirus.
The April crack for 500 ppm Gasoil is steady at $12.00 /bbl with the 10 ppm crack at $ 12.60 / bbl. The regrade is at -$ 2.60 /bbl.
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
Asia’s front-month 0.5% VLSFO crack to Brent crude jumped to a more than two-week high on Wednesday amid falling crude oil prices. The front-month crack rose to $13.19 a barrel, its highest since Feb. 21 and up from $10.65 a barrel in the previous session.
Similarly, the front-month VLSFO time spread also firmed, narrowing its contango structure to minus $4.25 a tonne.
Residual fuel oil inventories in Fujairah fell for a second straight week by 1.24 million barrels to 12.32 million barrels (1.939 million tonnes) in the week to March 9, S&P Global Platts data showed. However, compared with year-ago levels, the weekly fuel oil inventories at FOIZ were 43% higher.
The April crack for 180 cst FO has dropped to -$5.75 /bbl with the visco spread at $1.10 /bbl.
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
Most of the hedges we laid on yesterday look in the money. No fresh action for today.
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.