Crude Oil
Oil prices had a mixed day on Wednesday after several days of weakness as a much bigger-than-expected draw down in U.S. gasoline and diesel inventories augured a seasonal increase in refining demand. Brent crude futures fell 29 cents to settle at $76.15. U.S. crude , however, ended the session 39 cents higher at $66.82 a barrel.
However, traders remain concerned about worldwide demand, and that weakness in global equities would also reduce buying of assets like oil by investment managers. On Tuesday, oil prices slumped 5 percent on concerns about a weaker economic outlook.
Saudi Energy Minister Khalid al-Falih said on Tuesday that Saudi Arabia would step up to “meet any demand that materializes to ensure customers are satisfied”.
The DOE reported a smaller build of 6.3 million barrels of crude as compared to the API. However, this takes crude stocks comfortably above the 5 year average level.
Gasoline stocks drew largely due to a drop in production combined with a good demand growth of 142 kb/d. However, they are still at a seasonal high.
Distillate stocks drew due to good demand growth both inland (213 kb/d) as well as exports (135 kb/d). Notwithstanding the drop, stocks have just climbed over last year’s level which should be slightly bearish.
Naphtha
Asia’s naphtha crack recovered 0.8 percent to $63.93 a tonne after falling to its lowest in over a year in the previous session.
Traders however looked past the negligible increase as this was due to a falling Brent crude price and not reflective of fundamentals. At least 1.6 million tonnes of naphtha from the West, including Europe, are expected to arrive in Asia next month, more than the East can soak up.
Some traders were however expecting fundamentals to improve from the second-half December as no naphtha crackers would be in maintenance mode.
The November crack has further deteriorated to – $ 3.75 / bbl
Gasoline
Asia’s gasoline also recovered, rebounding from a 26-month low in the previous day to a two-session high of $3.24 a barrel.
Japan’s gasoline stocks were up 560,000 barrels to 10 million barrels in the week to Oct. 20. But this was down 590 KB when compared to the same period a year ago. Stocks in Fujairah too were up 720 KB at 8.9 million barrels. Current stock levels are more than 100% higher than levels in the previous year.
The November crack has dropped to $ 4.05 /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 fresh 2018 high of $1.86 a barrel to Singapore quotes on Tuesday. The premiums were at $1.84 a barrel on Tuesday.
Jet fuel cash premiums were at 21 cents a barrel to Singapore quotes, compared with a premium of 20 cents per barrel a day earlier.
Middle Distillate stocks in Fujairah were virtually unchanged from the previous week at 4.35 million barrels. As compared to the previous year, they are 75% higher.
The November crack has improved to $ 17.45 /bbl with the 10 ppm crack at $ 18.35 /bbl. The regrade is lower at $ 0.50 /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 premium on Wednesday for a second time this week supported by weaker crude prices that began to slide on Tuesday.
Meanwhile, firm buying interest for 380-cst fuel oil cargoes in the Singapore trading window lifted cash premiums of the fuel to a near three-month high of $6.99 a tonne to Singapore quotes on Wednesday, its highest since Aug. 1.
Fuel oil inventories at Fujairah climbed 460 KB to a nine-week high of 8.37 million barrels in the week ended Oct. 22. Fujairah fuel oil inventories are now 9 percent.
The IMO is reported to have rejected the request to allow for an ‘experience building period’ in 1Q2020 prior to completing the shift to low sulfur fuels.
The November 180 cst crack is stronger at +$ 0.65 / bbl with the visco spread at $ 0.90 /bbl
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
The strength in middle distillate as well as heavy distillate cracks would be testing the resolve of hedgers everywhere. However, as part of a disciplined hedging program we would recommend adding the following hedges.
- 10 ppm gasoil crack for November and December at current levels of $ 18.35 /bbl and $ 17.65 / bbl respectively
- Jet crack for November and December at current levels of $ 17.85 /bbl and $ 18.05 / bbl respectively
- FO crack for November, December and 1Q19 at current levels of $ 0.65 /bbl, $ 0.05 / bbl and – $ 1.40 /bbl respectively
While the strength in the Fuel Oil cracks definitely suggest waiting for stock data today before laying on the 1Q hedge, our sense is that we may regret not having hedged at current levels more than we would having hedged today since the hedging function does not really want to make market calls.
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.