Crude Oil
Oil prices fell about 2.5 percent on Wednesday after U.S. crude inventories rose for the 10th straight week to the highest in a year, adding to worries about a worldwide supply glut. Brent crude futures ended $ 1.45 lower at $58.76 a barrel. WTI crude settled $ 1.27 lower at $50.29 a barrel.
Selling picked up just prior to the market’s settlement, extending a sell-off that has cut prices by more than 30 percent since the beginning of October.
The market briefly pared some losses after a speech from Federal Reserve Chair Jerome Powell, who said risks to the U.S. economy are relatively balanced, suggesting the pace of interest-rate hikes may slow in coming months. That bolstered the stock market, but oil’s rally didn’t last.
The major support to crude prices, i.e. that OPEC could cut output in 2019, took some major blows yesterday as Saudi Arabia said it would not cut output alone and Nigeria stopped short of committing to a new push to curb supplies. Further, Russian President Putin said Russia is in touch with OPEC and is ready to continue cooperation with it if needed but Moscow would be satisfied with oil at $60/bbl.
U.S. crude stocks rose 3.6 million barrels last week to their highest level this year at 450 million barrels. This is just marginally short of stock levels last year. After falling to 2-1/2-year lows in September, crude stocks have risen 14 percent with 10 straight weeks of increases. The steady build in U.S. crude stocks is partly due to seasonal refining maintenance, but domestic production also has surged to a record 11.7 million barrels per day.
Last week’s build came notwithstanding a jump in refinery utilization rates to 95.6%, a seasonal high for more than 10 years. The material balance on crude continues to puzzle us with the statement suggesting a sizeable draw this week.
Distillates showed a jump in exports. However, this was not enough to compensate for a huge drop in demand, puzzling for this time of the year.
Another inexplicable part of today’s material balance is the correlation between the increase in utilization of crude and production of products. While crude utilization went up by close to 700 KB, distillate and gasoline stock production went up only by 400 KB.
Naphtha
Despite ongoing weakness in market supply and demand fundamentals, the naphtha crack to Brent crude edged slightly higher to a six-session high of $29.48 a tonne, up 20 cents a tonne from the previous session.
The December crack has improved to -$ 4.95 /bbl
Gasoline
The Singapore 92 RON gasoline crack against Brent crude slipped to minus $1.10 a barrel on Wednesday, down from a premium of $0.05 a barrel on Tuesday.
Concerns of ample supplies were made worse by signs of rising exports of the fuel from China. The Chinese government is set to release 2 million tonnes of refined fuel export quotas for this year, taking total quotas for 2018 to about 48 million tonnes. These new quotas, mostly gasoline and diesel and following the release of 2.93 million tonnes of quotas a month ago, reflect slower than expected domestic demand for transportation fuels.
Light distillates stocks held in Fujairah fell for a third straight week to a seven-week low of 8.76 million barrels in the week to Nov. 26, down 9 percent, or 881 KB, from the week before. Compared to the same time last year, however, Fujairah light distillate inventories are now 105 percent higher. The lower light distillate inventories came as fuel cargoes were sent to regional markets but arbitrage cargoes from Europe into the Fujairah oil hub were helping to limit the declines.
The December crack has tumbled to $ 0.35 /bbl
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Cash discounts for 10ppm gasoil widened to 45 cents a barrel to Singapore quotes on Wednesday, hurt by weaker buying interests in the physical market. On Tuesday, they were at a discount of 37 cents a barrel.
Asian refining margins for 10ppm gasoil plunged to a four-month low on Wednesday as additional Chinese exports are set to hit the market, adding to already abundant supplies currently available in the region.
The drop comes as the Chinese government gets set to release 2 million tonnes of additional fuel export quotas this year, taking total 2018 quotas to about 48 million tonnes. This fuel, mostly gasoline and diesel, follows the release of 2.93 million tonnes of additional fuel a month ago. The new quotas reflect slower than expected domestic demand for transportation fuels in China.
The slump in gasoil cracks may not last as arbitrage opportunities from the East to the West will continue tooffer support to Singapore’s gasoil cracks. The East – West EFS was around minus $32 per tonne on Wednesday. At current clean tanker rates, the spread should be over $20 per tonne to make the arbitrage flows profitable for traders.
Cash differentials for jet fuel were at a discount of 69 cents a barrel to Singapore quotes, compared with a discount of 68 cents a barrel on Tuesday.
The likelihood of a warmer winter is keeping a lid on kerosene heating demand, and the jet cash differentials would likely stay muted at least for the next two weeks.
The December crack has dropped to $ 13.65 /bbl with the 10 ppm crack at $ 14.40 /bbl. The regrade is at $ 2.85 /bbl
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
Asia’s front-month viscosity spread, the price differential between the prompt-month swaps for 180-cst and 380-cst fuel oil grades, fell to a near three-year low on Wednesday amid a growing supply imbalance between the two grades of the fuel.
Supplies of 180-cst fuel oil have been on the rise in recent months, weighing on prices of the lower viscosity fuel, while relatively tight availabilities of finished grade 380-cst fuel oil has pushed prices of the mainstay bunker fuel higher.
Higher 180-cst fuel oil exports from India’s Bharat Petroleum Corp Ltd since August following an extended shutdown of a 6,000-tonnes per day hydrocracker at its Mumbai refinery that could last until December have contributed the rise in 180-cst fuel oil supplies.
The December viscosity spread was at $3 a tonne on Wednesday, down from $4.50 per tonne in the previous session and its lowest since January 2016..
The December 180 cst crack has crashed further to +$ 2.80 / bbl with the visco spread at $ 0.55 /bbl
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
As jet cracks and fuel oil cracks ease out, we are able to close out a couple of positions. However, since jet is easing a lot slower than gasoil, the regrade continues to be strong. While this may work against our December hedges, this regrade is unlikely to be sustainable over long periods of time.
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.