Crude Oil
Brent prices fell yesterday even as the Brent-WTI spread continued to narrow. Brent crude futures settled 58 cents lower at $75.88 /bbl. WTI futures, however, gained rose 26 cents to settle at $ 66.36 /bbl
The narrowing of the spread is an indication that the market does not expect crude supplies to tighten further. While this depresses Brent prices, WTI prices are not really subject to the same sort of pressures and most non US crudes are priced off the Brent marker.
OPEC released its monthly report yesterday evening. On global oil demand, OPEC kept its 2018 projected growth rate unchanged at 1.65 mb/d year on year, but revised OECD Americas demand up, while downgrading Latin America and the Middle East. Supply-wise, OPEC said it pumped 35kbd more oil in May as members including Saudi Arabia, Iraq and Algeria raised production.
EIA released its Short Term Energy Outlook yesterday, revising 2018 US demand forecast up to 20.41 mb/d from 20.38 mb/d previously. The 2019 demand forecast was also raised marginally to 20.67 mb/d. On the supply front, EIA said May output increased 80 kb/d from April levels to 10.7 mb/d. It expects 2018 output to average 10.8 mb/d and 2019 output to average 11.8 mb/d.
API Data
The API reported a small draw in crude of 730 KB. It also surprisingly reported much larger builds in both gasoline and distillates than were expected by the market. As usual, the market will await the official release of data today for confirmation.
Naphtha
Asia’s naphtha crack extended gains for a second day to reach a four-session high of $82.13 a tonne on Tuesday due to higher demand.
The balance June crack has improved to -$ 2.35 / bbl. The July crack is at -$2.05
Gasoline
Asia’s gasoline crack hit a five-week low of $6.35 a barrel as high stocks weighed.
India, however, appeared to be a bright spot with surging demand. India’s domestic sales for diesel and gasoline, for instance, rose to record highs in May, with consumption of the latter having climbed to 2.46 million tonnes. That made its gasoline consumption reaching the highest monthly sales figure in the Petroleum Planning and Analysis Cell (PPAC) data going back to April 1998.
The balance June crack is lower at $ 8.50 / bbl.
The July crack is at $ 8.60 / bbl.
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Asia’s cash premiums for 10ppm gasoil inched higher by a cent on Tuesday after dropping to the lowest in over three months in the previous session on prospects of increasing supplies, while demand remained weak on the back of limited arbitrage opportunities.
Cash differentials for 10ppm gasoil were at 9 cents a barrel to Singapore quotes, up from a premium of 8 cents on Monday.
Meanwhile, cash differentials for jet fuel widened their discounts on Tuesday and were at 29 cents a barrel to Singapore quotes, the lowest since early January this year. On Monday, jet cash discounts were at 22 cents a barrel.
Gasoil demand in India, which hit record highs in May, will continue to be one of the major drivers in the region this year, but a likely seasonal dip in Indian sales during the monsoon may have wider effects on Asian markets. India, the world’s third-largest oil consumer, used 35.2 million tonnes of diesel during January to May this year, up 6 percent from the corresponding period last year. However, gasoil exports from India would likely go up as domestic consumption of the transportation fuel gets hampered by less travel in some parts of the country due to heavy monsoon rains.
The balance June crack has improved to $ 13.55 / bbl with the 10 ppm crack at $ 14.40 /bbl. The regrade is lower at $ 0.45 /bbl
The July crack has improved to $ 14.05 / bbl with the 10 ppm crack at $ 14.90 /bbl. The regrade is lower at $ 0.55 /bbl
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
Asia’s front-month 180-cst fuel oil crack to Dubai crude was steady on Tuesday despite higher crude prices and muted trade activity. Asian refining margins for fuel oil are set to hold near their current strong levels through the summer as increased use of the fuel by utilities to power air conditioners for cooling and disruptions to trade flows shrink global supplies.
While fuel oil markets typically strengthen during the northern hemisphere summer months, fuel oil margins have demonstrated additional strength this year by shrugging off sharp gains in crude oil prices.
The balance June 180 cst crack has dropped to -$ 3.50 / bbl. The visco spread has narrowed to $ 1.50 /bbl.
The July 180 cst crack is lower at -$ 3.30 / bbl. The visco spread is at $ 1.65 /bbl.
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
Our 2Q19 Naphtha crack position is the only one with uncertainty. With the market likely to be illiquid, the bid ask spread is going to be high on the same, hence, once in, you would be best served by staying in for a long time. Which is how hedges are meant to operate anyway
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.