Crude OilCovid StatsNaphthaGasolineDisitllatesFuel OilHedge Strategy

We are back after a short, much needed break!

Oil prices posted their first weekly gain after six in the red, with analysts warning of more volatility as the market tries to manage downward pressure from Omicron-related news and rate hike fears amid optimism about energy use in the coming quarter.

Brent crude futures settled up 73 cents on the day, gaining almost 1%, to settle at $75.15. For the week, Brent showed a gain of 7.7%. Last week, it fell to $65.80, from a 2014 high of $86.70 in mid-October.

WTI crude futures also settled up 73 cents, or 1%, at $71.67 a barrel. For the week, WTI gained 8.1%. Last week, it hit a four-month low of $62.48 on Omicron-related fears, after a seven-year high of $85.41 in mid October.

This rise came notwithstanding the US CPI rising 6.8% in the year to November, growing at its fastest pace in four decades just as it did in October, the Labor Department announced on Friday.

The U.S. Department of Energy said on Friday it will sell 18 million barrels of crude oil from the strategic petroleum reserve on Dec. 17, as part of a previously announced plan to cool oil prices. The 18 million barrels to be sold had already been approved by Congress in 2018. The remaining barrels will be issued in coming months through an exchange with the market.

The Tuesday-Wednesday Federal Open Market Committee meeting of the Fed and Powell’s press conference thereafter will give some sense of whether the rate hike process may accelerate. Expectations are heavy that Powell will side this time with colleagues at the central bank who want to hurry along the taper of the Fed’s “forever-running” stimulus by possibly cutting $30 billion a month instead of the previously-stated $15 billion, so that the whole thing can be wrapped up in a little over three months, and the first pandemic-era rate hike can be held by April.

The argument for this is not just a CPI reading running at its hottest since 1982. It’s also a labor market with the lowest number of jobless claims in 52 years and standing just 0.2% from the Fed’s target for maximum employment as of November. If these aren’t compelling reasons for monetary tightening, one has to wonder what will be.

U.S. drillers this week added oil and natural gas rigs for the sixth time in seven weeks as demand for energy keeps growing after last year’s coronavirus demand destruction. Oil rigs rose four to 471 this week, their highest since April 2020, while gas rigs rose three to 105, their highest since March 2020.

At a global level, the death toll from the COVID-19 virus rose to 5.32 Million (+3,988 DoD) yesterday. The total number of active cases rose by 80,000 DoD to 22.01 million. (Click here for details).

Global health experts, including top U.S. virologist and White House adviser Dr. Anthony Fauci, say the effects of Omicron appeared to be less severe than initially thought.​​

Almost 80% of the 40-odd Omicron cases reported in the United States were among the fully vaccinated, with a third of them even having received a booster dose, the U.S. Centers for Disease Control and Prevention said on Thursday, further complicating efforts to counter the latest Covid variant. Pfizer and its partner BioNTech have also said three doses of their vaccine could neutralize the variant.

Asia’s naphtha crack climbed to $157.38 per tonne, up $1.08 from last close. Naphtha margins have gained over 11% last week.

The January crack is higher at $ 4.55 /bbl.

Asia’s gasoline crack ended last week with over 51% gains on hopes of incremental supplies from India, while easing omicron concerns boosted demand sentiment..

The refining profit margin surged to $12.55 a barrel on Friday, strongest since Nov. 9, from $11.59 in the last session. The upside remained capped as U.S. gasoline stocks rose by 3.9 million barrels last week, compared with expectations for a 1.8 million-barrel rise.

Bloomberg has reported that passenger vehicle traffic levels on U.S. interstate highways were back to pre-Covid levels, with miles driven up 0.3% on a four-week rolling average, the first positive rate since March 2020.. 

The January crack is lower at $12.75/ bbl.

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

Asia’s cash premiums for jet fuel dipped on Friday, posting their first weekly decline in three, as fresh travel curbs due to the Omicron coronavirus variant in some countries dented aviation demand recovery.

Cash differentials for jet fuel were at a premium of 34 cents per barrel to Singapore quotes, down from a 40-cent premium a day earlier. The premiums have shed 29% this week.

“Earlier hopes of a wider recovery in the aviation market have unfortunately not been realized given the emergence of the Omicron variant, with the market now pinning their hopes on a Q1 2022 recovery instead,” Zameer Yusof, senior analyst at Refinitiv Oil Research said in a weekly note.

Refining margins or cracks for jet fuel, however, rose to $11.73 per barrel over Dubai crude during Asian trading hours, compared with $10.73 per barrel on Thursday.

China’s domestic air traffic, once the world’s envy after a fast rebound during the pandemic, is faltering due to a zero-COVID-19 policy that has led to tighter travel rules in Beijing and weaker consumer confidence after repeated small outbreaks.

Domestic capacity at the country’s three biggest airlines reached around 115% of pre-COVID levels in April but by October had fallen to around 77% due to outbreaks with lower peaks after each rebound, HSBC data shows. That contrasts with a steadier U.S. domestic recovery.

Gasoil stocks held independently in the ARA refining and storage hub rose 6.3% to 1.9 million tonnes in the week ended Dec. 9, according to Dutch consultancy Insights Global. ARA jet fuel inventories climbed 11.7% this week to 904,000 tonnes.

The January crack for 500 ppm Gasoil is higher at $12.35/bbl with the 10 ppm crack at $13.35 /bbl. The regrade is at -$0.80 /bbl.

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

Asia’s front-month crack for 0.5% very low-sulphur fuel oil (VLSFO) rose to their strongest level in over a week on Friday, while traders expect the market to remain tight through the end of this month.

The front-month VLSFO crack rose to $14.62 per barrel against Dubai crude during Asian trade on Friday, the strongest since Dec. 2. The crack was at $13.60 per barrel a day earlier, and has gained nearly 1% this week.

Cash differentials for Asia’s 0.5% VLSFO rose to a premium of $15.42 a tonne to Singapore quotes on Friday, compared with $15.30 per tonne on Thursday.

Meanwhile, Asia’s cash differentials for 380-cst high sulphur fuel oil (HSFO) were at a premium of $1.36 per tonne to Singapore quotes on Friday, compared with a premium of $1.22 per tonne in the previous session.

The 380-cst HSFO barge crack for January remained unchanged from Thursday to trade at a discount of $12.34 a barrel to Brent on Friday, posting a 2% dip this week, Refinitiv data showed.

Fuel oil stocks held independently in the ARA refining and storage hub slipped 8.2% to 1.2 million tonnes in the week to Dec. 9, data from Dutch consultancy Insights Global showed.

The January crack for 180 cst FO is higher at  -$6.40 /bbl with the visco spread at $1.35 /bbl.

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

We will hedge January Naphtha-Dubai at current levels of $4.55 per barrel. We will also hedge January Gasoline-Dubai at current levels of $12.75 per barrel. 

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.

Disclaimer : All the views are the author’s personal views. These do not constitute an advice to buy or sell any commodity

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