Crude Oil
Oil prices retreated about 2% on Wednesday, extending the previous day’s declines after Saudi Arabia said it would quickly restore full production. Brent crude futures fell 95 cents to settle at $63.60 a barrel. WTI crude futures fell $1.23 to settle at $58.11 a barrel.
The Saudi Defence Ministry held a news conference, displaying drone and missile debris it said was “undeniable” evidence of Iranian aggression. US Secretary of State, Mike Pompeo, described the event as “an act of war”. US President Trump said on Wednesday there were many options short of war with Iran and told reporters the unspecified, punitive economic measures would be unveiled within 48 hours. The United States wants to build a coalition of European and Arab partners to deter Iran.
Iran has continues to deny involvement in the strikes.
The U.S. Federal Reserve cut interest rates by a quarter of a percentage point for the second time this year, sending the dollar index higher in a counter-intuitive move. This added pressure on oil prices.
DOE data
The data from the DOE looked bearish with builds across the board. However, crude inventories in Cushing, Oklahoma, the delivery point for benchmark futures, declined for the 11th week in a row last week, the longest streak of losses since August 2018.
Given a mild increase in net imports, and a drop in run rates, the crude build continues to remain understated vis a vis our material balance report. However, going by the same yardstick, product stocks should have drawn as there has been a considerable drop in production
Naphtha
Asia’s naphtha crack tanked by more than 28% to a two-session low of $46.25 a tonne.
The supply of LPG from Saudi Arabia next month is expected to proceed without any significant delays or reductions in volumes, the sources added, though prices of the fuel are expected to rise.
The October crack has dropped back to – $ 4.80 / bbl.
Gasoline
Asia’s gasoline crack fell 13% to a three-session low of $8.30 a barrel after Saudi Arabia said it will restore its lost oil production by the end of September.
The October crack is lower at $ 7.60 /bbl
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Cash differentials for 10ppm gasoil were at a discount of 9 cents a barrel to Singapore quotes on Wednesday, compared with a discount of 11 cents a barrel on Tuesday.
Cash premiums for jet fuel were at 12 cents a barrel to Singapore quotes on Wednesday, compared with 23 cents a barrel in the previous session. Jet fuel cracks eased to $18.11 a barrel over Dubai crude on Wednesday, down from $18.47 per barrel a day earlier.
Cash premiums for jet fuel were at 23 cents a barrel to Singapore quotes on Tuesday, compared with 32 cents a barrel on Monday.
The October crack for 500 ppm Gasoil is lower at $ 17.25 /bbl with the 10 ppm crack at $ 17.95 / bbl. The regrade is at + $ 0.90 /bbl
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
Asia’s high-sulphur fuel oil (HSFO) gave back some of the sharp gains from the previous session, but a persistent shortage of supplies continued to support as the global bunkering industry transitions towards cleaner marine fuel oil specifications from 2020.
Lower deal values in the Singapore trading window dragged on 380-cst cash premiums for physical cargoes on Wednesday. Premiums for the front-month 380-cst time spread also fell as did the front-month 380-cst HSFO barge crack which widened its discount to against Brent crude after sharp gains over the past week. The 380-cst HSFO cash premium and front-month time spread both hit a record highs of $61.63 per tonne and $82 per tonne on Tuesday, respectively.
The October 180 cst crack collapsed to -$ 1.60 / bbl with the visco spread at $ 0.75 /bbl.
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
We had mentioned just yesterday that when the turnaround in Fuel Oil cracks comes, it would be swift and harsh. The prompt crack collapsed by over $ 5 / bbl yesterday. This is the most important reason to hedge. We have to lock in high values when we see them.
Even as the prompt gasoil crack keeps rising, the back end has eased off and we can close out the last tranche of Cal20 10ppm Gasoil-Dubai crack that we had hedged above $ 20 / bbl.
We would also like to hedge the 4Q19 Regrade at $ 1.10 / bbl, a level that has not been seen in a long time. Since October is around the corner, we are recording these as 3 hedges for October, November and December respectively.
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.