Crude Oil
Oil prices plunged about 5 percent on Tuesday to two-month lows as a sell-off in global equity markets raised worries about demand growth and after Saudi Arabia said it could supply more crude quickly if needed, easing concerns ahead of U.S. sanctions on Iran. Brent crude futures fell $3.39, to settle at $76.44 a barrel after plunging to $75.88, the lowest since Sept. 7. U.S. crude ended the session at $66.43 a barrel, down $2.93, after falling to a session low of $65.74, the lowest level since Aug. 20.
If U.S. crude drops below $65, a psychologically important figure, that could trigger further technical selling. Both contracts notched the biggest percentage drop since July.
Oil followed Wall Street’s early sell-off, founded on worries over profit growth and concern about Italy’s budget that have sent investors scrambling out of stocks of late. MSCI’s gauge of stocks across the globe at one point shed more than 2 percent and hit its lowest point since September 2017.
The oil market has been concerned that Saudi Arabia might cut crude supply in retaliation for potential sanctions over the killing of journalist Jamal Khashoggi. It would be self-defeating for Saudi Arabia to cut oil supply, as it would risk losing market share to other exporters while losing its reputation as a stable player in the market.
Meanwhile, Russia’s oil production is currently 150,000 bpd higher than the October 2016 level, the baseline for the global oil production deal, TASS news agency quoted Energy Minister Alexander Novak as saying.
The Turkey President Recep Tayyip Erdogan spoke about the Khashoggi affair yesterday in parliament, calling for international action on the “gruesome murder”. He also called on the Saudi King to hold those responsible to account, no matter their position, which some took as a veiled reference to the potential involvement of the Saudi Crown Prince.
API Data
In its report yesterday, the API reported a build of 9.9 million barrels of crude. While this was much larger than expected, this could simply be a catch up on the last weeks data when the difference between API and DOE data was a huge 8.7 million barrels.
In the last week, the API had reported a draw of 2.2 million barrels while the DOI had reported a build of 6.5 million barrels.
Given that the crude build came notwithstanding a drop in production of 300 kb/d, the draw in products seems to have been caused by a slowdown in run rates as refineries go into seasonal maintenance.
Naphtha
Asia’s naphtha crack dropped to $63.43 a tonne, making this the lowest front-month crack since July 26, 2017, on excess supplies.
Weak demand for European light distillates has had a significant impact on Asia as the former ships more cargoes to the East.
The November crack has further deteriorated to – $ 3.75 / bbl
Gasoline
Asia’s gasoline crack hit a 26-month low of $2.69 a barrel on Tuesday as supplies remained plentiful.
This came as no surprise to some industry sources, who expected supplies to stay high because strong gasoil premiums have discouraged many refiners from dramatic run cuts for now.
Although China’s September gasoline exports were the lowest for a year, markets expect China’s exports to return to high levels from November.
The November crack has improved to $ 4.45 /bbl.
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Cash premiums for gasoil with 10ppm sulphur content climbed to a new 2018 high of $1.84 a barrel to Singapore quotes on Tuesday. The premiums were at $1.72 a barrel on Monday.
The overall gasoil market in the region would likely to remain robust at least through the next two-three months but the east to west arbitrage is still shut.
Cash differentials for jet fuel remained at a premium for the second consecutive day, and were at 20 cents a barrel to Singapore quotes, compared with a one-cent premium a day earlier.
China’s September diesel and gasoline exports fell sharply from August as robust domestic demand curbed overseas shipments. Diesel exports in September fell to a 21-month low at 1.03 million tonnes below.
IEA expects the global gasoil market to be short by around 260 kb/d when IMO regulations come into effect in 2020. The estimates assume that gasoil demand will rise by about 1.26 mb/d, and would imply a 20-30% hike in gasoil prices.
The November crack has improved to $ 17.00 /bbl with the 10 ppm crack at $ 17.90 /bbl. The regrade is lower at $ 0.65 /bbl
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
Asia’s November 180-cst high sulphur fuel oil crack to Dubai crude flipped back to a discount on Tuesday after two sessions of decline, but sentiment remained bullish on expectations of tight spot fuel oil supplies coupled with firm demand.
Western arbitrage supplies are into Singapore have been about 3.5 million tonnes compared with about 4 million tonnes in September. This has contributed to tighter spot supplies in Singapore.
In November, however, Western arbitrage supplies are expected to rebound with current estimates totalling about 4 million tonnes or higher.
More broadly, sanctions on Iranian oil exports, as well as declines in fuel oil production from key producers like Russia, Venezuela and Mexico, are also contributing to a tighter global fuel oil supply outlook.
IMO is said to planning to ban vessels from carrying non-compliant fuel oil on board with effect from March 2020, according to an IMO official. IMO is likely to vote on and make the ban official on 26 October.
The November 180 cst crack is stronger at +$ 0.35 / bbl with the visco spread at $ 1.00 /bbl
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
The strength in the middle distillates is causing the light distillate cracks to tank even further. We do not believe that this will last forever. If naptha cracks go below -$ 4.00 / bbl, we shall put in another consumer hedge. Likewise if gasoline goes below $ 4.00 / bbl. We have the same opinion about fuel oil and we shall hedge any positive crack for now.
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.