Oil Price Digest 14-Jun-17

Crude Oil

Oil prices settled higher on Tuesday after OPEC detailed supply cuts around the world. Brent settled 43 cents higher at $48.72 /bbl while WTI settled up 38 cents at $46.46 /bbl. However, prices edged lower after the release of bearish API Inventory data which saw a build in crude oil inventory as against expectations of a drawdown.

The world’s top exporter Saudi Arabia outlined cuts to customers in July that included a reduction of 300,000 barrels per day (bpd) to Asia as well as deeper cuts in allocations to the United States. The Outlook however continues to be bearish with rig counts continuously rising in the US and the production volumes expected to rise in Nigeria and Libya, both of which are exempt from the OPEC supply cuts.

The market’s weakness can be seen in technical activity in Brent crude, where the 50-day moving average fell through the 200-day moving average on Monday, a strong indicator of a near-term weakening trend also known as a “Death Cross”. The last time this happened was in mid-2014 and it preceded a massive selloff in oil that dropped Brent from $108 a barrel to about $47 a barrel in the span of five months!

API Data

The API in its weekly report on US stocks said that crude stocks had built by 2.75 million barrels. Coming against an expectation of a draw of 2.74 million, this is definitely bearish.  Even more bearish is that Gasoline inventories built by 1.8 million barrels given that the market expected a draw of 450 kb. Distillates however, unexpected showed a drawdown in stocks of 1.45 million barrels against an expected build of 685 kb.

While the build in crude may be due to the API data catching up with the DOE data, if the DOE data shows another build, we would expect the $ 47.00 area to be severely tested once again.

The naphtha physical markets continue to soften with physical trades heard to have been concluded at weak numbers. Among the sellers were Kuwait Petroleum Corp (KPC) which sealed a new annual naphtha supply deals at lower premiums than a year ago and India’s IOC which sold a partial cargo of naphtha for loading in late June at a steep discount to its price formula. The cracks however are slightly higher than yesterday.

The June Japan Naphtha- Dubai crack is  at -$0.70 /bbl and the July crack is at -$0.90 /bbl

Gasoline

Gasoline cracks also continue to weaken on the back of inventory builds and lackluster demand. Adding to the oversupply fears is anticipation of a step up in exports from China.

June crack is lower at $10.70 /bbl while the July crack is at $ 9.90 /bbl

Distillates

Distillate markets strengthened further after the release of bullish API Inventory data. Cracks were also supported by the news that Singapore Refinery Company’s refinery on Jurong Island had to halt operations of its No. 1 crude distillation unit (CDU) due to a fire. However, given the large system its shareholders have, there are unlikely to be major disruptions to gasoil cargoes or imports by this refinery.

The June crack is up at $ 10.95 /bbl while the June regrade has softened further to -$0.50 /bbl. The July crack is at $ 10.40 /bbl with the July regrade now at -$ 0.20/bbl

Fuel Oil

Although the Fuel Oil cracks are marginally stronger today, this trend is unlikely to continue with  fuel oil imports set to climb this month. As reported in yesterday’s Oil Price Digest, the total fuel oil flows from west to Asia could reach the highest in four months in June at nearly 5 million tonnes.

The June 180 cst crack is at -$ 0.35 / bbl/ The visco spread is unchanged at $ 1.35 / bbl. The July crack is at -$1.10 /bbl

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