Crude Oil
Oil prices rose for the second consecutive day on Wednesday after U.S. government data showed domestic crude inventories fell to their lowest levels since February 2015, easing worries about oversupply that have weighed on markets in recent weeks. Brent crude futures rose 49 cents to settle at $73.93 a barrel. U.S. West Texas Intermediate (WTI) crude futures rose 78 cents to settle at $69.30 a barrel.
The initial price gains were reversed as the market assimilated the news that most of the draw took place on the US West Coast (Padd 5). Prices however extended gains in post-settlement trade after Saudi Arabia’s Energy Minister Khalid al-Falih said the country was “temporarily halting” all oil shipments through Bab El-Mandeb strait immediately, after an earlier attack on two crude vessels by the Iran-aligned Houthi movement.
Russia raised its 2018 domestic crude output forecasts to reflect the latest decision made under the OPEC+ deal, according to energy minister Alexander Novak. The 2018 forecast is now 90 kb/d higher, with Moscow having pledged to pump 200 kb/d more.
Iraq will sign a deal to boost the production capacity of the Majnoon field by more than 200 kb//d on Thursday, according to Iraqi officials.
U.S. crude stocks drew 6.1 million barrels in the week to July 20, 2018. At 404 million barrels, inventories are currently at their lowest since February 2015. Crude stocks at the Cushing, are also at their lowest levels since November 2014. However, we can see from the material balance statement, that crude oil production and consumption have been more or less similar over the last week. The change has been brought about by a huge drop in imports combined with a record level of exports. Over the last four weeks, the crude import figures have been alternating between 7.5 mb/d and 9.0 mb/d resulting in huge draws or builds. In fact, the material balance suggests the draw should have been even larger.
Similarly, product consumption and supply seem to be evenly balanced. Having said that, product demand, particularly gasoline demand at 9.8 mb/d is hearteningly strong and supportive for prices.
Naphtha
Asia’s naphtha crack eased 3 cents to $113.10 a tonne on Wednesday after hitting a two-month high the previous day. The current level, however, was nearly twice that of a year ago, supported by demand and tight supply.
Naphtha volumes arriving in Asia next month were expected to ease to 1.2 million tonnes from 1.3 million tonnes each for May, June and July. Compounding regional tightness for August is 110,000 tonnes out of India – the region’s largest naphtha exporter – that contains higher-than-normal oxygenate and will require additional processing to make it ready for use by the petrochemical industry.
The August crack has eased further to $ 0.30 /bbl.
Gasoline
Asia’s gasoline crack extended gains for a fifth straight session, hovering near a two-month high of $8.33 a barrel.
Light distillates inventories in the Fujairah Oil Industry Zone (FOIZ) fell about 13 percent from a week ago to 6.4 million barrels in the week ended July 23. This is just marginally lower than the level at this time last year.
The August crack has dropped to $ 9.80 / bbl
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Cash premiums for jet fuel rose to 6 cents a barrel to Singapore quotes on Wednesday, up from a premium of 5 cents on Tuesday.
Meanwhile, cash differentials for 10 ppm gasoil narrowed their discounts to 3 cents a barrel to Singapore quotes, compared with a discount of 7 cents on Tuesday.
There has been a slight uptick in sentiment for gasoil as the front-month spread moved to backwardation this week, but incremental supplies from China may act as a dampener.
Middle distillates inventories in the Fujairah Oil Industry Zone (FOIZ) fell about 10 percent from a week ago to 2.7 million barrels in the week ended July 23. Compared with a year-ago levels, the weekly Fujairah middle distillate inventories were about 36 percent lower.
The August crack is lower $ 14.10 / bbl with the 10 ppm crack at $ 15.00 /bbl. The regrade is lower at $ 0.90 /bbl
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
Asia’s fuel oil market eased on Wednesday but fundamentals remain supportive over the near term as tight supplies continue to cope with firm demand for the fuel. Limited arbitrage flows into Singapore since around May have pressured fuel oil supplies in the city-state but are expected to return starting September when strong seasonal demand in the Middle East subsides.
The front-month time spread for 380-cst fuel oil eased for a second session straight to $8 a tonne on Wednesday.
Asia’s 180-cst fuel oil crack to Brent for August also slipped to minus $3.16 a barrel, down from $3.11 a barrel in the previous session and a near one-year high of minus $2.72 a barrel on Monday.
Western fuel oil flows into East Asia for August are expected to close at lower levels for a third consecutive month and near July’s two-year low of about 2.5 million tonnes. So far, 2.3-2.4 million tonnes of Western fuel oil flows into East Asia were assessed for August. This comes as total fuel oil flows into East Asia for July are expected to close lower than June’s eight-month low of about 5.6 million tonnes, with around 4.9 million tonnes assessed so far.
Fuel oil inventories at the Fujairah Oil Industry Zone (FOIZ) climbed to a 2018 high of 10.187 million barrels in the week ended July 23. Inventories rose 4.2 percent, or 408,000 barrels drom a week earlier. Fewer exports to Asia during the peak demand season in the Middle East as utilities there increase consumption to meet summer cooling demand likely contributed to the rise in inventories of the fuel in the Fujairah hub. Compared with the same time last year, Fujairah fuel oil inventories were 6 percent lower, the narrowest year-on-year deficit since the week to May 21.
Tighter rules on shipping emissions around China’s coastlines from the start of next year is a clear sign the world’s No. 2 economy will strive for 100 percent compliance when the global sulphur emissions cap starts in 2020. On July 9, China’s Ministry of Transport announced it would extend its emission control areas (ECAs) to include the country’s entire coastline from 2019 and limit the sulphur content of fuel ships can burn to 0.5 percent while operating within 12 nautical miles of the coastline.
The August 180 cst crack has further eased to -$ 1.15 / bbl with the visco spread at $ 1.25 /bbl
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
Nothing fresh to report on the same today.
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.
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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.