Crude Oil

Crude prices tanked by around 5% yesterday after the OPEC announcement that production cuts will stay in place as is for the next 9 months. Brent settled $2.50 lower at $51.46 per barrel and WTI settled $2.46 cents lower at $48.90 per barrel.

There are many ways to explain the market’s disappointment with this announcement.  We outline a few below
  1. Markets were expecting deeper cutsWhat seems to have transpired is that no consensus appears to have been reached to deepen cuts. We need to bear in mind that if at all the level of overall compliance was so high, it was because Saudi Arabia had cut down more than it had committed to.  The ability / willingness to continue with this is being doubted by the market
  2. Markets were expecting added participationNigeria and Libya were two countries who were excluded from the first round of production cuts. Libya’s production has extended to over 200 kbd above November 2016 levels.  Nigeria’s production was 1.54 Mbd in December.  That is expected to be close to 1.8 Mbd now and slated to rise to 2.2 mbd soon.

    US production has increased by 550 kbd in this year and is expected to go on rising.

    Production in the North Sea is expected to rise this month

    The rising production seems to be almost negating the impact of the previous cuts

  3. Compliance issuesCompliance with production cuts always remains an issue. As mentioned earlier, the level of compliance has been extraordinarily high due to Saudi Arabia overcompensating for its fellow members.  Its willingness to do so ad infinitum is doubtful.  Russia was never a good complier even during the last 6 months.  Therefore, its willingness to carry on with the compliance going forward is also being doubted.
  4. Non OPEC reactionThe cuts were also dependent on non OPEC players contributing to the reduction in production.  How these players will react, particularly in reaction to yesterday’s price drop, remains to be seen.

The Naphtha physical market slipped into discounts for H1 July cargos (CIF Japan). In addition to muted demand, a rare naphtha cargo was seen to be offered by Pertamina.

The June Japan Naphtha- Dubai crack however, was seen stronger at -$1.40 /bbl.  This could be due to drop in crude prices.


Gasoline cracks also strengthened today.  This could be a combination of the drop in stocks in Singapore as well as the drop in crude prices.

Source : Bloomberg

The June crack is valued at $ 10.75 /bbl today.


Distillate cracks stayed largely unchanged today.  While the market is going to see a few refineries going into maintenance, it is also seeing a large rise of 1.2 million barrels in stocks.

Source : Bloomberg

The June crack is still valued around  $ 10.60 /bbl. The regrade is at 50 cents/bbl.

Fuel Oil

Fuel Oil witnessed muted activity in the window with traders staying on the sidelines while the OPEC conference was in session.

However, there was a huge draw down in stocks. This, taken in conjunction with the likely less availability of Fuel Oil due to the production cuts, and here it may be borne in mind that most of the crude replacing the cut crude is going to be sweet and light in nature, Fuel Oil cracks firmed up considerably.

Source : Bloomberg

The June 180 cst crack is now valued at -$ 2.95 / bbl. The visco spread is still around  $ 1.20 /bbl.

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.

Disclaimer : All the views are the author’s personal views. These do not constitute an advice to buy or sell any commodity
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