Crude OilCovid StatsNaphthaGasolineDisitllatesFuel OilHedge Strategy

Oil prices tumbled for a second day in a row on Tuesday, with the U.S. crude benchmark snapping the key $70 per barrel support before recovering, as a weaker demand outlook by the International Agency sapped the market.

Brent crude futures settled down 69 cents, or 0.9%, at $73.70 per barrel, after a high of $75.14 and bottom of $72.58. Brent rose 7.7% last week. Prior to that, it fell to a four-month low of $65.80, from a 2014 high of $86.70 in mid-October.

WTI crude futures settled down 56 cents, or 0.8%, at $70.73 a barrel, after oscillating between a session peak of $72 and low of $69.53. WTI gained 8.1% last week. Prior to that, it hit a four-month low of $62.48 on Omicron-related fears, after a seven-year high of $85.41 in mid-October.

The weakened outlook for oil came on the same day that China confirmed its first Omicron case. Given Beijing’s much-publicized zero-tolerance policy to new Covid outbreaks and the variant’s high transmissibility, this could result in the fresh closures of factories and workplaces in the world’s largest crude importer.

U.S. data showing producer prices at 11-year highs reinforced market expectations of faster stimulus tapering by the Federal Reserve, which meets this week. This supported the dollar and weighed on oil, which typically move inversely.

The IEA revised down its demand outlook by 100,000 barrels per day for both the remainder of this year and 2022. “The surge in new Covid-19 cases is expected to temporarily slow, but not upend, the recovery in oil demand that is under way,” the Paris-based agency said.

api Changes

Crude stocks drew a bit less than expected. The surprise was the draw in distillate stocks. We await the official stock data today.

At a global level, the death toll from the COVID-19 virus rose to 5.34 Million (+7,518 DoD) yesterday. The total number of active cases rose by 70,000 DoD to 22.15 million. (Click here for details).

Asia’s naphtha crack surged on Tuesday hitting a one-month high over recovering consumption hopes, after OPEC raised its world oil demand forecast for the first quarter of 2022.

The crack climbed to $164.63 per tonne from $159.63 in the last session. Naphtha margins have gained over 17% since Dec. 6 due to renewed demand hopes on recovering prices of alternative cracker feedstock liquefied petroleum gas (LPG).

The January crack is higher at $ 5.10 /bbl.

Asia’s gasoline crack inched lower but traded strong over $12 on expectations on recovering oil demand.

The refining profit margin settled 11 cents lower at $12.45 a barrel on Tuesday.

The January crack is higher at $13.00/ bbl.

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

Asian refining margins for benchmark 10 ppm gasoil and jet fuel climbed to more than one-month highs on Tuesday amid limited inventories and few signs so far that the new Omicron variant is significantly denting demand.

A surge in COVID-19 cases and the emergence of the Omicron variant will dent global demand for oil, the International Energy Agency (IEA) said on Tuesday, but the broader picture is one of increasing output set to top demand this month and soar next year. 

“The surge in new COVID-19 cases is expected to temporarily slow, but not upend the recovery in oil demand that is underway,” Paris-based IEA said in its monthly oil report.

The gain in refining margins also came as oil prices dipped towards $74 a barrel on Tuesday. O/R

Refining margins for 10 ppm gasoil climbed to $14.07 a barrel over Dubai crude during Asian trading hours, up from $13.62 in the previous session and the highest since Nov. 10, Refinitiv data in Eikon showed.

Similarly, the front-month jet fuel crack rose to a more than two-month low of $12.17 a barrel above Dubai crude, down from $11.72 on Monday.

Jet margins were also supported by expectations that the winter peak demand for heating in the region will support demand.

Both refining margins sank to about three-month lows in late-November as traders anticipated the Omicron variant would hurt demand for both middle distillate fuels.

The January crack for 500 ppm Gasoil is higher at $13.10/bbl with the 10 ppm crack at $14.10 /bbl. The regrade is at -$0.90 /bbl.

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

The front-month 10ppm gasoil discount to 0.5% very low-sulphur fuel oil (VLSFO) climbed to its narrowest in over a month on Tuesday amid a strengthening gasoil market and steady VLSFO values.

The front-month spread climbed to minus 44 cents a barrel on Tuesday, up from minus 88 cents on Monday and its narrowest since Nov. 10, Refinitiv data in Eikon showed. 

Meanwhile, a spike in cargo demand in the Singapore trading window lifted cash differentials for 180-cst high-sulphur fuel oil (HSFO) to a 19 cent per tonne premium to Singapore quotes, up from a $1.40 per tonne discount in the previous session.

The January crack for 180 cst FO is higher at  -$6.05 /bbl with the visco spread at $1.20 /bbl.

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

We will hedge Jan 10 ppm-Dubai at current value of $14.10 per barrel. This is just in keeping with best hedging practices.   

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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