Oil prices jumped 6% on Wednesday, rising for the first time in three days and cutting by two-thirds losses on the week, after a tick down in U.S. inflation for April suggested the Federal Reserve might not go overboard in the near term with rate hikes that could tip the economy into recession.
Data showing weekly inventories of U.S. crude at nearly six times higher to expectations and at their largest in four weeks also did little to dissuade oil bulls from making a forceful return to the market. The focus instead was on last week’s outsized drawdowns in gasoline, as well as the distillates used for producing the diesel required for trucks, buses, trains and ships as well as fuel for jets.
Brent crude futures settled up $5.05, or 4.9%, at $107.51 a barrel. Brent had fallen 9% on the week prior to Wednesday’s rebound, hitting a two-week bottom of $101.31.
WTI crude futures settled up $5.95, or 6%, at $105.71 a barrel. Like Brent, WTI had retreated almost 9% earlier this week, hitting a two-week low of $98.65 on worries that the United States might fall into a recession from aggressive rate hikes by a Fed determined to beat inflation growing at its fastest pace in 40 years.
U.S. consumer prices rose 8.3% in the year to April, easing slightly from the 8.5% annual growth in March while keeping inflation not far from the four-decade highs seen since late last year, the Labor Department said earlier on Wednesday.
The prospect of returning to 2% inflation is a key focus of the Fed. The central bank has penciled in seven rate hikes this year — the maximum possible under its calendar of monthly meetings in 2022 — and more rate revisions next year to achieve that 2%.
More perplexing to investors is the quantum of rate increases planned by the Fed for each month. As of now, officials at the central bank are debating the viability of a 75-basis point hike in June, after the 50-bps and 25 bps increases in May and March, respectively. A 75-bps hike would represent the largest upward adjustment in rates since 1994.
DOE data
The DOE data was distinctly bullish notwithstanding the huge build in crude stocks which has come from a huge drawdown of around 7 Million barrels from the SPR.
Having said the above, the draw in products seems to have arisen more from exports than from any increase in demand.
As can be seen from the material balance statement above, demand for both products seems to have decreased not insignificantly. It remains to be seen how sustainable current demand levels are at these or higher prices.
At a global level, the death toll from the COVID-19 virus rose to 6.28 Million (+1,509 DoD) yesterday. The total number of active cases rose by 60,000 DoD to 38.92 million. (Click here for details).
Asia’s Naphtha refining profit margin climbed to $123.55 a tonne, up $11.98 from Tuesday. Naphtha markets narrowed further in contango by $2.25.
The June crack is higher at $ 0.25 per barrel
Asia’s Gasoline crack rose to $25.62 a barrel, up 50 cents from the previous close.
Stocks of light distillates at the Fujairah Oil Industry Zone (FOIZ) rose 1.268 million barrels to 5.326 million barrels in the week ended May 9, data from industry information service S&P Global Commodity Insights showed.
The June crack is unchanged at $28.10 per barrel.
Click Here for a graphical depiction of Global Gasoline stocks by region.
Asian refining margins for jet fuel rose on Wednesday as airlines continue to add capacity to their schedules with more international travellers returning to the skies.
Refining profit margins, also known as cracks, for jet fuel rose to $36.91 per barrel over Dubai crude during Asian trading hours, up from $33.78 per barrel a day earlier.
Cash premiums for jet fuel were at $4.40 a barrel to Singapore quotes on Wednesday, compared with Tuesday’s $5.68 per barrel that was the highest since April 4.
The prompt-month time spread for the aviation fuel in Singapore remained in backwardation to trade at $4.30 per barrel on Wednesday.
Middle-distillate inventories in the Fujairah Oil Industry Zone climbed 23.3% to a 10-week high of 1.9 million barrels in the week ended May 9, data via S&P Global Commodity Insights showed. This week’s stocks, however, were 53% lower compared with the corresponding week last year.
The June crack for 500 ppm Gasoil is higher at $41.10 /bbl with the 10 ppm crack at $42.10 /bbl. The regrade is at -$5.50 /bbl.
Click Here for a graphical depiction of Global Distillate stocks by region.
Asia’s cash premiums for 380-cst high-sulphur fuel oil (HSFO) fell further on Wednesday, slumping to a multi-week low on weaker buying interests in the physical trade window, but traders expect the market to remain tight in coming weeks. The cash differentials for 380-cst HSFO slipped to a premium of $6.91 per tonne to Singapore quotes, the lowest since March 21. They were at $9.21 per tonne a day earlier.
Meanwhile, cash premiums for Asia’s 0.5% VLSFO were at $17.83 a tonne to Singapore quotes on Wednesday, compared with $19.58 per barrel on Tuesday. The front-month VLSFO crack climbed to $21.16 per barrel against Dubai crude during Asian trade on Wednesday, up from $21.09 per barrel in the previous session.
Fujairah Oil Industry Zone (FOIZ) inventories for heavy distillates and residues slipped 1.8%, or by 201,000 barrels, from the previous week to 11.1 million barrels (1.65 million tonnes) in the week ended May 9, data via S&P Global Commodity Insights showed.
The June crack for 180 cst FO is lower at – $4.00 /bbl with the visco spread at $4.10 /bbl.
Click Here for a graphical depiction of Fuel Oil stocks by region.
No fresh activity 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 refinery.
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.