Crude Oil
Oil ended nearly 15% higher on Monday, with Brent logging its biggest jump in over 30 years amid record trading volumes, after an attack on Saudi Arabian crude facilities cut the kingdom’s production in half and fanned fears of retaliation in the Middle East. Brent crude settled at $69.02 a barrel, rising $8.80, or 14.6%, its biggest one-day percentage gain since at least 1988. WTI futures ended at $62.90 a barrel, soaring $8.05, or 14.7% the biggest one-day percentage gain since December 2008.
The attack heightened uncertainty in a market that had become relatively subdued in recent months and now faces the loss of crude from Saudi Arabia, traditionally the world’s supplier of last resort.
Brent futures saw more than 2 million contracts traded, an all-time daily volume record.
The weekend attack on state-owned producer Saudi Aramco’s crude-processing facilities at Abqaiq and Khurais cut output by 5.7 million barrels per day and threw into question its ability to maintain oil exports. The company has not given a specific timeline for the resumption of full output. Two sources briefed on Aramco’s operations said a full return to normal production “may take months.”
For now, an oil tanker bottleneck is building at Saudi ports with at least 11 supertankers are waiting to load oil cargoes after the attack on the country’s oil facilities.
U.S. intelligence officials said Monday that evidence pointed to Iran being behind the attack, raising the specter of a response that could further unsettle world markets and global supply. President Donald Trump said he was in “no rush” to respond, however, as he awaited more details. That marked a shift in tone from a tweet sent by Trump on Sunday, when he said the United States was “locked and loaded” and ready to respond.
The CBOE’s Crude Oil VIx, a gauge of options premiums based on moves in the U.S. oil exchange traded fund, rose to 77.17, its highest level since December last year. The attacks and subsequent hit to supply are likely to keep prices elevated for some time.
Crude cargo booking activity and freight rates for shipments from the U.S could be boosted further from its current levels of about 3 million barrels of oil a day.
Saudi oil exports will continue as normal this week as the kingdom taps into stocks from its large storage facilities. However, the attack has raised concerns about how long the kingdom will be able to maintain oil shipments. Major importers of Saudi crude, such as India, China, Japan and South Korea, will be the most vulnerable to any supply disruption and would be scrambling to find alternatives. China currently has about 325 MB of oil in its SPR, enough for about 33 days of imports, according to industry estimates.
The initial surge in prices Sunday was the biggest for Brent crude since the 1990-1991 Gulf crisis, before pulling back as various nations said they would tap emergency supplies to keep the world supplied with oil. Trump approved the release of oil from the U.S. Strategic Petroleum Reserve, which holds more than 640 million barrels of crude oil. South Korea has already said it would consider releasing oil from its strategic reserves. Members of the International Energy Agency are required to keep 90 days of imports in storage to offset supply shocks.
Naphtha
Asia’s naphtha crack was at $33.25 a tonne, its highest since July 12.
The attack on the Saudi facilities could impact light distillate production. Saudi Aramco is the third-largest Middle Eastern supplier of naphtha to Asia, behind the United Arab Emirates (UAE) and Qatar.
The October crack is higher at – $ 5.05 / bbl.
Gasoline
Asia’s gasoline crack hovered near a two-month high on Friday at $8.70 a barrel, its highest in over two months
After the weekend attacks, Saudi Arabia is set to become a significant buyer of refined products.
The October crack is at $ 8.05 /bbl
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Cash differentials for 10ppm gasoil were at a discount of 7 cents a barrel to Singapore quotes on Monday amid lacklustre buying interest for physical cargoes in the Singapore trading window. They were at a discount of 12 cents a barrel on Friday.
Cash differentials for jet fuel were at a premium of 32 cents a barrel to Singapore quotes on Monday, compared with Friday’s 29 cents per barrel.
The October crack for 500 ppm Gasoil is at $ 17.40 /bbl with the 10 ppm crack at $ 18.10 / bbl. The regrade is at + $ 0.70 /bbl
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
The HSFO cash premium surged to $59.19 per tonne above Singapore quotes, up from the previous high of $46.22 per tonne hit on Friday. Premiums for the residual fuel have increased nearly five times over the last one month.
The front-month spread for 380-cst HSFO widened its backwardation further on Monday to trade at a premium of $70.50 a tonne, up from $60 a tonne on Friday. The more actively traded 380-cst barge crack to Brent crude slipped to minus $19.48 a barrel during Asian trading hours as crude oil prices soared on Monday. The crack was at minus $18.65 per barrel on Friday.
The October 180 cst crack is higher at +$ 1.15 / bbl with the visco spread at $ 1.00 /bbl.
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
The Fuel Oil crack continues to sky rocket. We will add one more tranche of 180 cSt-Dubai for October at the current levels of $ 1.15. We will now have to stay nimble for our next target to lay on a hedge.
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.