Crude closed slightly higher on Tuesday amid mixed API Inventory Data which saw a less than expected draw down in crude and more than anticipated draw down in gasoiline and distillates. Brent settled $0.28 higher at $54.15 per barrel and WTI settled $0.34 higher at $51.47 per barrel. The Brent-WTI differential continued to reduce settling at its lowest level of $2.68 /bbl, for this month.
All eyes are now on the upcoming OPEC Meeting today wherein a decision is expected for extension of production cuts until March 2018. Delegates from Kuwait, Algeria, Ecuador and Mexico are the latest countries to state their support for extended output cuts. However, the news in the market is that countries like Kuwait would prefer to commit to a 6 months extension rather than a 9 months extension.
Whilst an extension of the production cut announced by OPEC will certainly be bullish for crude oil prices, any significant jump in prices may be capped by the increasing oil production from the US which is now at 9.35 mbd, nearly double of its 2008 figures. Add to this the facts that the production numbers continue to grow (US rig count on 19 May is 720) and that several U.S. producers can now economically produce oil when prices are just $40 a barrel, and we have a situation wherein the OPEC cuts will be more than counterbalanced by US production.
Therefore, the OPEC cuts notwithstanding, we may actually witness falling prices in the times ahead unless the US decides to participate in efforts for stabilizing oil prices, something which it appears unlikely to do (US President Donald Trump yesterday had proposed reducing the Strategic Petroleum Reserve by half).
Although several market participants comprising Taiwan’s Formosa Petrochemical Corp, (Asia’s top naphtha importer), South Korea’s YNCC, GS Caltex and Japan’s JX were seen the market looking to buy naphtha, the levels being heard were weaker as compared to the levels that were traded last month. On the supply side, Indian Companies continue to offer naphtha with the latest tenders being floated by Reliance, IOC and ONGC.
The June Japan Naphtha- Dubai crack is down at -$1.80 /bbl.
Gasoline cracks stayed strong on the back of bullish API Inventory data which saw a significant draw down in inventories. The near term outlook is also bullish going into the Muslim fasting season of Ramadan.
The June crack is unchanged at $ 10.80 today.
Gasoil cracks were stable buoyed by bullish API Inventory data and demand for cargoes from the likes of India and Tanzania.
The crack is unchanged at $ 10.60 /bbl for June. The regrade is marginally stronger at 37 cents/bbl today.
The fuel oil cracks recovered slightly on news that industry sources expect June arrivals of fuel oil cargoes into Singapore to total between 4 to 4.5 million tonne in June, down from May’s estimate of about 5 million tonnes. However, traders remain tentative amid apprehensions that that fuel oil stored in vessels around Singapore could quickly flood the market.
The June 180cst-Dubai crack is higher at -$ 3.80 / bbl. The Visco spread is unchanged at at $ 1.20 / bbl