Oil prices jumped 5% on Wednesday, rising even after a surprise build in crude stockpiles that snapped eight weeks of declines, as bulls seized back control of a market that plunged earlier in the week.
Brent Crude settled up $2.88, or 4.2%, at $72.23 per barrel in the latest session.
WTI crude futures settled up $3.10, or 4.6%, at $70.30 a barrel.
While the market going up was definitely a sign of risk appetite reentering the market, notes of caution are now being sounded. “But the seasonal peak in gasoline consumption is over and if the EIA continues reporting builds like this for the next few weeks amid the new Covid scare, then I doubt prices would continue trending higher.” says John Kilduff, founding partner at New York energy hedge fund, Again Capital.
China supplied about 3 million tons, or 22 million barrels, from its Strategic Petroleum Report to oil processors, according to people familiar with the situation. The move was intended to cool prices and control a growing threat of inflation, said the people, who asked not to be named discussing a confidential matter. The operation might weaken Chinese demand for imported crude. The release underlines how seriously Beijing sees rising raw material costs, and an accompanying risk of broader inflation in living costs and could act as a headwind to rising oil prices.
In line with the API data, the DOE data also reported a small build for crude stocks with draws for product stocks.
The draw for gasoline stocks is probably due to a reduction in gasoline production. Having said that, the drop itself seems some what out of proportion to the drop in refining rates (0.4%). When we look at the material balance statement below, we can see that the drop in distillate production is far less making the data look anomalous.
The crude stocks being reported continue to flummox us. There is an increase of 2.4 mbpd in net imports. There is a drop in crude requirement because of a decline in run rates. How that translates to a build of just 2 million barrels is beyond our understanding.
Of even more concern is the continuously flagging demand for gasoline. With the driving season drawing towards a close, we have yet to see any conclusive evidence that demand will recover to pre Covid levels shortly. Further, with the increase in Covid cases globally, the timeline for that level to be achieved seems to retreat farther into the distance.
Asia’s naphtha crack dipped on Wednesday but stayed within close sight of a multi-year high touched in the previous session, supported by strong petrochemicals demand, while a drop in Middle East arbitrage arrivals offset increased inflows from the West.
Asia’s naphtha crack slipped to $130.88 per tonne on Wednesday, down from Monday’s $137.73 a tonne, a level last seen in early 2016. The crack has soared about 44% over the last month.
Western arbitrage volumes into Asia for July was hovering at a 13-month high of 2.6-2.7 million tonnes, while supplies from the Middle East were at a nine-month low of 2.4-2.5 million tonnes, Refinitiv Oil Research assessments showed.
The August crack is lower at $3.60 / bbl
Asia’s gasoline crack dropped 38 cents to $7.70 per barrel on Wednesday.
Light-distillate inventories in the Fujairah Oil Industry Zone climbed 6.8% to 6.6 million barrels in the week to July 19, data via S&P Global Platts showed. Weekly stocks in Fujairah have averaged 6.5 million barrels so far this year, and this week’s inventories were about 9.4% lower compared with the same period a year earlier, Reuters calculations showed.
The August crack is higher at $10.20 / bbl
Click Here for a graphical depiction of Global Gasoline stocks by region.
Cash differentials for 10 ppm gasoil were 3 cents stronger at a discount of 2 cents per barrel on Tuesday.
Middle-distillate inventories in the Fujairah Oil Industry Zone dropped 9.6% to 3.4 million barrels in the week ended July 19, data via S&P Global Platts showed. The weekly stocks in Fujairah have averaged 3.8 million barrels this year, compared with 4.2 million barrels in 2020, Reuters calculations showed.
Cash differentials for jet fuel were at a discount of 29 cents per barrel to Singapore quotes on Wednesday, compared with a discount of 41 cents per barrel in the last trading session on Monday.
Refining margins, also known as cracks, for jet fuel in Singapore were at $5.98 per barrel over Dubai crude during Asian trading hours, up 10 cents from Monday, but 6.6% lower from a high of $6.40 touched on July 5.
Airlines across the globe have removed 1.9 million seats this week from their July capacity, which is now expected to be at 358.5 million seats, up 19% from June, but 32% lower compared with July in pre-pandemic 2019, according to aviation data firm OAG.
The August crack for 500 ppm Gasoil is higher at $6.45 /bbl with the 10 ppm crack at $ 8.45 /bbl. The regrade is at -$ 0.30 /bbl.
Click Here for a graphical depiction of Global Distillate stocks by region.
Asia’s front-month price differentials between 0.5% very low-sulphur fuel oil (VLSFO) and high-sulphur fuel oil (HSFO), also known as the HiLo or sulphur spread, fell to a three-week low on Wednesday amid a firming HSFO market due to a spike in demand and tightening supplies.
The front-month HiLo spread climbed to $120 a tonne on Wednesday, down from $125.75 in the previous session and its lowest since June 30, according to Refinitiv data in Eikon.
China’s exports of VLSFO rose 31% in June from a year earlier to 1.66 million tonnes, General Administration of Customs data showed on Tuesday, as attractive prices drew clients from other bunker hubs.
Fujairah Oil Industry Zone inventories for heavy distillates and residues rose by 49,000 barrels, or about 8,000 tonnes, to 11.76 million barrels, or 1.85 million tonnes, data via S&P Global Platts showed. This was 17% lower than levels of a year ago.
The August crack for 180 cst FO is lower at -$5.20 /bbl with the visco spread at $1.65 /bbl.
Click Here for a graphical depiction of Fuel Oil stocks by region.
No fresh action for today.
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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.