Crude Oil
Crude Oil prices took support from product draws in the US to post gains for the fifth day in a row. Brent gained 66 cents to settle at $47.31 /bbl whilst WTI gained 50 cents to settle at $44.74 /bbl.
We have been mentioning the market is bearish and oversupplied and what have you, but that has not prevented 5 straight days of gains. So what is happening?
In the first place, there has inevitably been profit taking. Secondly, market players are still not convinced that rebalancing is not going to occur. Another aspect of market movement has been technical as was largely reported as the case yesterday with prices breaking out of a downward channel.
We ourselves are of the opinion, that a glut of crude is here to stay under current circumstances. We are merely waiting to see how much higher this streak carries us.
DOE Data
The DOE data reported a modest build in crude with draws in gasoline and distillates as below
The market found the following aspects of the data heartening.
- While crude stocks built ‘at least’ they did not build as much as projected by the API
- US production dropped by 100 kbpd to 9.25 million barrels per day
- Gasoline stocks resumed draws
The drop in crude production was posited by traders as a sign of uncertainty of US production’s ability to cover up the shortfall due to OPEC cuts.
We are concerned by the following statistics
- Crude Oil stocks built notwithstanding a drop in production. While a number of factors go into making this number (imports which have increased, SPR stocks which have decreased once again, and a drop in run rates), this would tend to show that there is absolutely no shortage of crude.
- It is recognized by by all that the drop in US production is largely due to shut down in production due to hurricane Cindy.
- The lack of gasoline demand continues to worry. A 2.4% drop in demand (4 week average year on year) is definitely a cause for concern in the peak driving season.
- The drop in refinery runs could be due to the refining margins not being sustainable on an ongoing basis. We had previous reported how gasoline was previously being shipped at non profitable costs over the pipeline which has been reduced significantly now.
Naphtha
Although quite a few physical cargoes have been trading in the market, the naphtha cracks continue to fall on the back of rising crude prices and expectations of increased supplies to offset current demand.
The July crack is marginally lower at -$0.75 /bbl
Gasoline
Gasoline cracks managed to recover slightly on the back of inventory drawdown in US stocks as disclosed by EIA yesterday. However, the outlook remains bearish as stocks continue to remain high in the US and Europe.
The July crack is up at $ 10.10 /bbl
Distillates
Distillate cracks are stronger as India continues to drive demand. Hindustan Petroleum Corp Ltd (HPCL) is seeking 65,000 mt of diesel for delivery in July. Others looking for cargoes include Sri Lanka’s Ceylon Petroleum Corp and China Aviation Oil.
In other news, China National Petroleum Corp (CNPC) has suspended sales of fuel to North Korea over concerns the state-owned oil company won’t get paid, as pressure mounts on Pyongyang to rein in its nuclear and missile programmes.
The July crack is higher at $ 11.55 /bbl with the July regrade at -$ 0.50/bbl
Fuel Oil
Although Fuel oil cracks continue to be supported by bullish market fundamentals in northwest European markets, which is making shipments into Asia increasingly uneconomical over the near term, cracks are lower today mainly due to the rise in crude prices.
In the near term, lower supplies coupled with strong demand in the East will continue to prop up cracks.
Western fuel oil flows into East Asia for July closed at 3.1 to 3.2 million tonnes, the lowest in 12 months and well below June’s four-month high of 5.1 to 5.2 million tonnes.
The The July crack is lower at $0.05 /bbl with the visco spread unchanged at -$1.05/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.