Crude Oil
Oil prices rose more than 2% on Wednesday after the DOE reported a huge drop in crude oil stocks accompanied with sizable drops in product stocks. Brent crude futures rose $ 1.44 to settle at $66.49 a barrel. WTI crude futures rose $ 1.55 to settle at $59.38 a barrel.
U.S. gasoline futures were up 4% after climbing to their highest since May 23 in overnight trade. The crude inventory fall and refinery outage added to uncertainty over oil supplies created by the war of words between Washington and Tehran.
U.S. President Donald Trump is set to hold much-anticipated trade talks with Chinese President Xi Jinping in Osaka at 11:30 a.m. (0230 GMT) on Saturday, a White House spokesman told reporters on Wednesday. Trump said that a trade deal with Chinese President Xi Jinping was possible, but he is prepared to impose U.S. tariffs on virtually all remaining Chinese imports if the two countries continue to disagree.
Outages at North Sea oilfields have helped put competing Nigerian oil on pace to arrive in Europe at the highest levels in seven months in June.
DOE data
Crude inventories fell 12.8 million barrels last week, far surpassing expectations for a decrease of 2.5 million barrels. That was the most since September 2016, according to the statistical arm of the Department of Energy.
While the draw in crude stocks is huge, we are of the opinion that it is more in the nature of a correction in data rather than any significant indicator of supply shortage in the times to come. Over the past several weeks, crude has been building. However, our material balance statement tended to indicate that the build was overstated.
Crude imports dropped to a low of 6.65 mbpd. We feel this figure will be due for a correction next week and we may well see a build then. Overall crude exports rose to 3.8 mbpd, beating its previous record of 3.6 mbpd in February. This is indeed impressive.
Gasoline stocks fell by 996 KB, while distillate stockpiles fell by 2.4 million barrels.
The product draw down may well be attributable to the shut down of the Philadelphia Energy Solutions 335 kbpd refinery since the drop in gasoline demand is quite disappointing.
Naphtha
Asia’s naphtha crack rose to a two day high of $24.20 a tonne.
Asia’s top naphtha importer Formosa Petrochemical Corp emerged with tenders to buy open specification naphtha for Aug. 11 20 arrival at Mailiao as well as liquefied petroleum gas (LPG) for first half August as raw material for its crackers. The tenders will be awarded later this week.
The July crack is higher at -$ 5.85 /bbl
Gasoline
Asia’s gasoline margin rose to a two day high of $3.81 a barrel on Wednesday.
Philadelphia Energy Solutions (PES) is expected to seek to permanently shut its oil refinery in the city after a massive fire caused substantial damage to the complex. Shutting the refinery would create a squeeze in gasoline supplies in the busiest, most densely populated corridor of the United States.
However, the impact on Asia will be likely be marginal as inventories in Asia are still on the high side and the shutdown of PES is unlikely to cause a substantial upswing in the gasoline market. Moreover, if there is a shortage in the United States, Europe would likely be the key supplier based on distance.
Gasoline stocks in Fujairah plummeted by close to 2 million barrels to 7.06 million barrels.
The July crack is higher at $ 6.75 / bbl
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Cash discounts for 10ppm gasoil were at 8 cents a barrel to Singapore quotes, compared with a discount of 6 cents a barrel on Tuesday.
Cash discounts for jet fuel narrowed by a cent to 9 cents a barrel to Singapore quotes on Wednesday.
Middle distillate inventories in the Fujairah Oil Industry Zone dropped 5% from a week earlier to 2.03 million barrels in the week to June 24, data via S&P Global Platts showed. Stocks of middle distillates in the Fujairah oil hub have averaged 2.1 million barrels so far in 2019. This compares with a weekly average of 2.8 million barrels in 2018. Compared with year ago levels, weekly Fujairah middle distillate stocks were about 30% lower.
The July crack for 500 ppm Gasoil is strong at $ 15.25 /bbl with the 10 ppm crack at $ 15.95 / bbl. The regrade is at +$ 0.30 /bbl
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
Asia’s cash premiums for 380 cst sulphur fuel oil rose to a fresh 2019 high on Wednesday, as building buying interest was met with scarce supply in the Singapore trading window. Cash premiums for 380 cst fuel oil jumped to at $6.36 a tonne to Singapore quotes, up from $4.97 a tonne in the previous session and their highest since Dec. 4.
Meanwhile, the July/August 380 cst time spread held its backwardated structure steady to $11.50 a tonne on Wednesday, unchanged from the near eight month high it hit in the previous session.
Inventories for heavy distillates and residues in Fujairah rose 714 kb from the previous week to a two week high of 10.93 million barrels in the week ended June 24, data via S&P Global Platts showed. Compared with year ago levels, the weekly fuel oil inventories at FOIZ were 23% higher. Fuel oil stocks at FOIZ have averaged 10.054 million barrels so far in 2019. This compares with a weekly average of 7.9 million barrels in 2018.
The July180 cst crack is strong and has flipped into premium at + $ 0.15 / bbl with the visco spread narrowing sharply to $ 1.25 /bbl.
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
Gasoil cracks have strengthened tremendously over the past few days. We will hedge 10 ppm gasoil from August to December 2019. As mentioned previously. We shall look to hedge Fuel Oil cracks for August at levels higher than -$1.00 / bbl.
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.