Crude Oil
Oil prices ended Friday’s session close to their strongest level since late 2014 drawing support from a weakening U.S. dollar, which on Friday hit new three-year lows against a basket of other leading currencies. Brent gained 10 cents to close at $70.52 /bbl. WTI gained 63 cents to settle at $66.14 /bbl.
With the March Brent future expiring in the next couple of days, the Brent – WTI spread has narrowed significantly. The Brent April future settled at $ 70.15 / bbl
For the week, WTI crude gained roughly 4.4%, while Brent rose about 2.8%, the fifth such rise in six weeks.
The Baker Hughes rig count showed a huge rise of 12 rigs to rise to 759 at the end of last week. This is the biggest weekly increase since March last year.
US crude imports by pipeline and rail from Canada, its largest supplier, have been crimped for the past several weeks due to the 590,000 b/d Keystone pipeline, a major artery, being forced to operate at 80% of its capacity
Meanwhile, hedge funds have been increasing long positions steadily on expectations that tightening supply will keep prices buoyant. Money managers raised their net long positions in WTI by 7,612 contracts to 549,602 in the week to Jan. 23, a new record high. Speculators also raised positions in Brent in the week to Jan. 23 from a record the week before by 13,912 contracts to 584,707 contracts. The two benchmarks combined now have a total long position of 1.1 million contracts, or over $ 77 billion in terms of market value.
Technical Analysis
This analysis is basis the April 2018 future, which becomes the front month in a couple of days. The last week was a corrective week and we call for Brent to follow a sideways range-bound action. In our opinion, the 68.28 lows made last Friday (19-Jan) will hold the immediate range. This pans out -the low remains inviolate through the week under review, leaving long stops set just below the low inviolate.
But the significant technical event this week is a break and close above last week’s high (70.37); a classic indication of strength. So is the market still in a range bound corrective phase? Our analysis suggests this to be so for the following reasons:
- Thursday’s selling is suggest some profit taking by longs at the new rally high coinciding with Short term targets at 70.50-70.60.
- Zoom right out and you will notice this selling is consistent with that seen during the May 2015 swing high of 69.93.
- Though we have closed this week higher with buying seen in 4 of 5 days, our sense is that it its not enough.
- Weekly momentum continues to be stretched while shorter term momentum is still to fall to levels needed to propel a strong and sustained upmove.
The strategy remains to trade long in keeping with the larger trend, and use the short term noise to build those longs. There are no indications yet to go short.
While Supports at 68-68.30 holding last week’s lows continue to remain relevant, fresh and immediate supports at 70.00-70.50 ( marking the previous 2 week highs) will guide the immediate intra-week trend.
Fresh trend continuation (and end of ranged action) signals with a close above this week’s high – 71.28. This event is likely to be backed by fresh momentum as well. Wait for it!
Immediate Resistances are close by- 70.80-71.30 – marked by highs rejected over the last 3 days.
The larger trend suggests we are likely to break above these RR in time, getting to targets at 72.75 ( mentioned last week) and now, additionally to 73.10.
It is important to stay aligned with the larger trend and not get distracted by the short-term fluctuations.
Trade for the week:
Hold longs or Go long in the 69.70-70.00 range with a stop below 68.10. Expect momentum only with a close above 71.30. Barring a reversal before, the plan is to book longs in the 72.75-73.10 range
Naphtha
High inventories, excess supplies and muted demand continue to dominate the naphtha story taking the physical crack to a 5-1/2 month low of $74.90 /MT on Friday. Inability of naphtha prices to keep pace with the steadily rising crude price is pressuring cracks further.
The February paper naphtha crack has slumped to -$ 0.40 /bbl .
Gasoline
After reaching a one-week low of $7.62 /bbl on Thursday, the Asian gasoline crack (to Brent) recovered to a one-month high of $ 8.12/bbl on Friday supported by some fresh spot demand coming into the market. The Platts Asian Trading Window was also active on Friday witnessing the conclusion of four trades totalling 200,000 bbls, making it the largest volume traded in a single session since January 19 earlier this month.
The February paper 92Ron gasoline crack has jumped to $ 12.75 /bbl today.
Distillates
Continued cold spell in some parts of Asia, particularly Tokyo is propping up kerosene demand thereby causing Jet cracks to rise since refiners have to maximise kerosene yield at the expense of jet fuel. As for gasoil, the demand supply fundamentals appear to be balanced for the short-term.
The February paper gasoil crack has risen slightly to $ 15.80 /bbl The 10 ppm crack is at $ 16.65 /bbl. The February regrade is unchanged at $ 0.25 /bbl.
Hedging recommendations made earlier are being retained (until they are squared off).
February 2018 Gasoil 10 ppm $ 16.15/bbl : Jet $ 15.50/bbl (add more at $ 16.75 / bbl and $ 16.00 / bbl)
4Q 2018 Gasoil 500 ppm $ 15.35 /bbl : Gasoil 10 ppm $ 16.20 /bbl : Jet $ 16.00 /bbl.
1Q 2019 Gasoil 500 ppm $ 15.85 /bbl : Gasoil 10 ppm $ 16.80 /bbl : Jet $ 16.55 /bbl
We would also recommend hedging Cal 2019 (for aggressive hedgers) at
Cal 2019 Gasoil 500 ppm $ 16.10 /bbl : Gasoil 10 ppm $ 17.05 /bbl : Jet $ 16.85 /bbl
Fuel Oil
Rising inventories across the US, Europe and Singapore are keeping fuel oil prices in check. Although the front-month visco spread climbed to a near six-month high on Friday, this momentum is unlikely to be sustained as there are limited signs of narrowing low-viscosity fuel oil supplies.
The February 180 cst crack is unchanged at -$ 5.65 /bbl. The visco spread remains at $ 0.95 / 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