Crude OilCovid StatsNaphthaGasolineDisitllatesFuel OilHedge Strategy

Oil prices rose early Monday morning, recouping some losses after Friday’s plunge of about $10 a barrel, as investors looked for bargains but remained cautious with the focus on the Omicron coronavirus variant and Iran nuclear deal negotiations.

Oil prices plunged $10 a barrel on Friday, their largest one-day drop since April 2020, as a new variant of the coronavirus spooked investors and added to concerns that a supply surplus could swell in the first quarter.

Brent crude futures settled down $9.50, or 11.6%, to $72.72 a barrel, a weekly decline of more than 8%.

WTI crude futures settled down $10.24 on Friday, or 13.1%, at $68.15 a barrel, declining more than 10.4% on the week in high volume trading after Thursday’s Thanksgiving holiday in the United States.

Both contracts fell to a fifth week of losses and their steepest falls in absolute terms since April 2020, when WTI turned negative for the first time amid a coronavirus-induced supply glut.

“The market is factoring in a worst case scenario situation in which this variant causes massive demand destruction,” said Bob Yawger, director of energy futures at Mizuho.

“The biggest fear is that it will be resistant to vaccines and be a massive setback for countries that have reaped the benefits from their rollouts,” said Craig Erlam, senior market analyst at OANDA.

The OPEC/non-OPEC alliance has pushed back this week’s meetings of Joint Technical Committee and the Joint Ministerial Monitoring Committee by a day to buy more time to evaluate the situation in light of the omicron. The JTC meeting has been postponed from Monday to Wednesday and the JMMC meeting from Tuesday to Thursday. However, the OPEC+ energy ministers’ meeting remains scheduled for Thursday, according to a Bloomberg report.

Our Take

Our views are:

  • Markets tend to move in a knee jerk reaction to any unexpected development. Therefore, the move may be slightly overdone.
  • Having said that, the extent of reaction underlines the fact that the supply situation is nowhere as tight as was being made out to be by the bulls.
  • The levels of vaccination are far higher than they were when the Delta variant came out.
  • While the number of active cases continues to rise, the fatality of the virus is much lower.
  • Hence, the Omicron variant is unlikely to cause as much turmoil as the Delta variant did. 
  • More news will be available in the coming few days. It is probably best to adopt a wait and watch policy.


At a global level, the death toll from the COVID-19 virus rose to 5.22 Million (+4,257 DoD) yesterday. The total number of active cases rose by 80,000 DoD to 20.16 million. (Click here for details).

A new strain of the Covid 19 virus was detected in South Africa on Thursday. The World Health Organisation labeled the B.1.1.529 strain a “variant of concern” on Friday and christened it “omicron”. Several countries moved to impose temporary travel bans on southern African countries starting on Friday. But the new strain was reported in other parts of the world through the weekend.

Asia’s naphtha crack  fell to $144.38 per tonne from $149.43 in the previous session, as a slide in crude benchmarks weighed on prices.

ARA naphtha stocks declined to 246,000 tonnes from 263,000 tonnes in the prior week.

The December crack is higher at $ 3.65 /bbl.

Asia’s gasoline crack edged higher on Friday as crude oil prices dropped after a new COVID-19 variant spooked investors. However, the upside remained limited over concerns of surplus supply.

The crack rose to $7.35 a barrel from $7.29 in the last session. Gasoline margins have shed most gains in November after doubling in the last two months.

ARA gasoline stocks fell by almost 4% to 837,000 tonnes in the week to Thursday, data from Dutch consultancy Insights Global showed.

The December crack is much lower at $7.85/ bbl

Click Here for a graphical depiction of Global Gasoline stocks by region.

Asian refining margins for benchmark 10 ppm gasoil and jet fuel dropped on Friday on renewed demand concerns, as a result of a new possibly vaccine-resistant coronavirus variant.

Cash differentials for gasoil with 10 ppm sulphur content  plunged by 27 cents to a premium of 27 cents per barrel to Singapore quotes.

ARA Gasoil stocks fell 7% to 1.8 million tonnes in the week ended Nov. 25, the lowest since February 2020, according to Dutch consultancy Insights Global.

Cash differentials for Jet improved by a cent to a premium of 24 cents over Singapore quotes.

ARA jet fuel inventories dropped 3% this week to 807,000 tonnes, the lowest since May 2020. 

The December crack for 500 ppm Gasoil has tanked to $8.00/bbl with the 10 ppm crack at $ 9.30 /bbl. The regrade is at -$ 1.35 /bbl. 

Click Here for a graphical depiction of Global Distillate stocks by region.

Asia’s 0.5% very low-sulphur fuel oil (VLSFO) cash differential and market structure extended gains to fresh highs on Friday, buoyed by firm demand and limited supplies.

The VLSFO cash premium to Singapore quotes reached its highest in nearly two years at $18.83 a tonne, up from $14.97 in the previous session and $9.28 last week. Backwardation in the VLSFO front-month time spread also surged to $19.50 per tonne, up from $16.25 in the previous session and its highest since January 2020, Refinitiv data in Eikon showed.

ARA Fuel Oil stocks fell by 29,000 tonnes to a two-week low of 1.13 million tonnes in the week ended Nov. 25, data from Dutch consultancy Insights Global (IG) showed. Compared with last year, the inventories at the ARA hub were 23% lower, but were slightly above the five-year seasonal average of 1.11 million tonnes.

The December crack for 180 cst FO is higher at  -$6.80 /bbl with the visco spread at $1.10 /bbl.

Click Here for a graphical depiction of Fuel Oil stocks by region.

No Fresh trades today. However, we would like to take the opportunity to highlight the reason for risk management today. We had some time ago recommened hedging gasoil cracks in excess of $15.00/barrel. Those who had done similar trades would be really grateful for their sagacity.

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 refinery.

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.

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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