Crude Oil
Oil prices tested $30/bbl on Monday on fears that government lockdowns to contain the spread of the disease would spark a global recession..
Brent crude futures fell $ 3.80 (11.2%) to settle at $33.05 a barrel. WTI futures fell $ 3.03 (9.3%) to settle at $28.70 a barrel.
During the US trading session Brent prices fell below $30 a barrel. The international benchmark fell as low as $29.52 a barrel, its lowest since January 2016.
Brent’s premium to WTI narrowed to less than $1 during Monday’s session, falling to its lowest since 2016, making U.S. crude oil uncompetitive in international markets.
The coronavirus outbreak, which has infected at least 174,000 people and killed around 6,700, already has caused oil prices to plummet by 50% this year. Many forecasters have lowered estimates on crude demand, as the virus disrupts business activity, travel and daily life.
Central banks globally took action over the weekend to try to quell economic fallout of the pandemic, but the measures did little to strengthen stock markets in freefall, as investors anticipate a sharp contraction in demand in coming weeks anyway.
In China, where the virus began, daily refinery throughputs dropped 4.8% in the first two months of the year, sliding to 99.19 million tonnes, the lowest level since December 2018, data from the National Bureau of Statistics showed on Monday.
On the supply side, An OPEC and non-OPEC technical meeting planned for Wednesday in Vienna has been called off as attempts to mediate between Saudi Arabia and Russia after the collapse of their supply cut pact made no progress, sources said on Monday.
At a global level, the death toll from the COVID-19 virus rose to 7,164 (+549 DoD) yesterday, with the total number of confirmed infections at 182,550 169,531 (+12,019 DoD). The growth factor of new cases outside rose to 1.16 on Sunday. The number of cases being discovered is rising quite fast now. (Click here for details).
Like the US, India plans to take advantage of low prices for oil from Saudi Arabia and the UAE to top up its SPR. A source said the oil ministry has written to the finance ministry to release about 48-to-50 billion rupees ($673.7 million) to buy oil in 8-9 VLCCs for filling the storage.
A surge in demand to ship the flood of crude oil unleashed by Saudi Arabia and its OPEC peers is sending freight rates surging and forcing buyers to seek out space on smaller tankers with the largest ones booked, shipping sources said. Saudi Arabia’s Bahri, snatched up about 24 VLCCs since last week. Broker Clarksons Platou Securities said on Monday that in times of increased Saudi production, Bahri would charter tankers from the market in addition to its own fleet of 41 VLCCs. During 2017 to 2019, Bahri only booked 10 VLCCs per year on average.
The US is unlikely to ease sanctions on Iran despite an appeal from China that it do so because of the coronavirus pandemic, sources familiar with the matter said, arguing that Tehran continues what Washington regards as its malign behavior.
Naphtha
Asia’s naphtha crack hit a 6-month low of $32.65 a tonne, dragged down by gasoline and a looming economic recession.
The April crack has dropped to -$3.00 / bbl.
Gasoline
Asia’s gasoline crack flipped into a discount for the first time in more than a year as the spread of the coronavirus severely dented global demand because people have cut back on travel. The physical crack against Brent crude hit a discount of 78 cents a barrel, the first discount since February 2019 when the market was oversupplied.
The gasoline crack is performing much worse than jet fuel despite restrictions and travel bans that have affected air travel.
The April crack has dropped to -$2.45 /bbl
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Cash discounts for jet fuel widened 35 cents per barrel to Singapore quotes on Monday, compared with a discount of 10 cents per barrel on Friday.
Asian refining margins for jet fuel dropped on Monday, slumping to their lowest in more than a decade, as airlines around the world continued to scale back flights amid extensive travel restrictions due to the coronavirus pandemic.
Refining margins, also known as cracks, for jet fuel plunged to $4.71 per barrel over Dubai crude during Asian trade on Monday, the lowest as far as March 2009. They were at $7.70 per barrel on Friday.
Asian refiners may be forced to curtail jet fuel output due to further weakening demand. Jet fuel typically cannot be stored for long periods of time as its quality could degrade, which increases the incentive for refiners to produce less of the fuel.
Meanwhile, cash differentials for 10 ppm gasoil flipped to a narrow discount of 1 cent per barrel to Singapore quotes, hurt by a weaker deal in the physical market. The gasoil cash differentials were at a premium of 10 cents on Friday.
The April crack for 500 ppm Gasoil has dropped to $8.10 /bbl with the 10 ppm crack at $ 8.75 / bbl. The regrade is at -$ 3.70 /bbl.
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
Asia’s 0.5% VLSFO price differential against 380-cst HSFO fell to its narrowest on record on Monday. The VLSFO-HSFO price spread for April fell to $96.75 a tonne on Monday, down from $116.25 on Friday and its lowest since records began in July.
The April crack for 180 cst FO has jumped to -$2.35 /bbl with the visco spread at $1.20 /bbl.
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
The FO crack is strengthening again in the prompt. We shall add an hedge for 180 cst – Dubai for each month of 2Q2020 as follows
- April at current levels of -$2.35 / bbl.
- May at current levels of -$3.35 / bbl.
- June at current levels of -$4.35 / bbl
We will also take a bold Airline refining hedge and buy 3Q2020 Jet at $ 4.85 /bbl. The current levels have not been seen in the last 10 years or more. If markets don’t improve by then, then this crack hedge will be the least of our worries.
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.