Crude Oil
Oil prices continued their recovery as traders closed positions over the weekend. Brent crude futures rose 78 cents to settle at $77.66 a barrel. U.S. crude settled 26 cents higher at $67.59 a barrel.
This gain notwithstanding, crude prices slumped for the third week in a row, with Brent declining 2.7% and WTI losing 2.2%.
The factors that the market will be looking for are more or less the same i.e. the impact of sanctions on Iran to push it up and the possibilities of oversupply to bring in down.
Prices got some support when two sources said on Friday Iraq will stop trucking crude oil from its northern Kirkuk oil field to Iran in November to comply with U.S. sanctions. Washington has said it wants to reduce Iranian oil sales to zero, although this looks unlikely. Still, many buyers, including Iran’s biggest customer, China, appear to be falling in line, forcing Tehran to store unsold oil on tankers. In addition, Saudi Energy Minister Khalid al-Falih said there could be a need for intervention to reduce oil stockpiles.
Active rigs in the US rose by 2 to 875, the highest since March 2015.
Crude prices continued to fall through the week even as they made a good recovery on the last two days. The retracement was strong and brought prices above the 100 DMA which would suggest that we are not in a bearish trend though, the bullishness has evaporated from the market.
While the RSI in the dailies seems to be oversold suggesting potential for a rise, the MACD in the weeklies is on the verge of a cross over which could take the market further down. The 100 DMA appears to be a critical support level which was breached quite convincingly yesterday.
Trading Strategy
Markets never got above $ 80.50 last week so we were saved the blushes of another losing postion. The price action in the market still shows a skittish market with a bias to bullishness. We would recommend buying just above the 100 DMA at say 76.75 with a stop below last week’s to target $ 80.00 /bbl. Given that the December future is expiring in a couple of days, it may be wiser to target the January future at around $ 75.80 with a stop below $ 75.00
Supports and Resistances
The first supports are in the $ 77.30 range with the 100 DMA as a strong support at $ 76.80 -$ 77.00 range. Below this is last week’s low of around $ 75.20.
Resistances are around $ 78.00, then at around $ 7.60 by the 50 DMA at $ 79.20.
Naphtha
Asia’s naphtha crack fell to an 8-1/2 month low of $61.65 a tonne, dragged down by gasoline and ample supplies.
The November crack is now at a record low of – $ 4.65 / bbl
Gasoline
Asia’s gasoline crack slumped 21 percent to hit a 27-month low of $2.37 a barrel as a supply glut widened.
China was seen adding to the gasoline glut by issuing 2.93 million tonnes of additional export quotas for refined oil products for 2018, of which 740,000 tonnes were for gasoline. Demand from Indonesia, Asia’s top gasoline importer, could not offset the abundant supplies for now.
ARA onshore light distillates stocks were also rising. ARA petrol inventories edged up by 0.8 percent to reach a two-week high of 996 KT in the week to Oct. 25.
The November crack has dropped to $ 3.15 /bbl.
Click Here for a graphical depiction of Global Gasoline stocks by region.
Distillates
Cash differentials for gasoil with 10ppm sulphur content were at $1.83 a barrel to Singapore quotes, compared with $1.70 a day earlier.
The front-month gasoil spread widened its backwardated structure on Friday. The November/December spread rose to $1.16 per barrel, up from 90 cents a barrel on Thursday.
Cash premiums for jet fuel slipped to 9 cents a barrel to Singapore quotes on Friday, compared with a premium of 13 cents on Thursday.
Gasoil stocks in ARA for the week to Oct. 25 were at 2.56 million tonnes, versus 2.87 million tonnes in the preceding week. The drop in gasoil stocks comes as record-low water levels along the Rhine river have significantly curtailed barge movement between ARA and demand centres in Germany and Switzerland for weeks. Germany says it has granted the release of strategic oil product inventories as low Rhine levels continue to hamper supplies to inland markets.
Jet fuel inventories fell 2.8 percent to 635,000 tonnes.
Compared with year-ago levels, jet fuel stocks were down more than 10 percent, while gasoil inventories were about 14 percent higher.
The November crack has improved to $ 17.80 /bbl with the 10 ppm crack at $ 18.70 /bbl. The regrade is lower at $ 0.00 /bbl
Click Here for a graphical depiction of Global Distillate stocks by region.
Fuel Oil
Cash premiums and refining margins of Asian fuel oil soared to fresh highs on Friday amid ongoing concerns of tight prompt supplies of finished grade fuel oil in the Singapore storage and trading hub.
Strong buying interest for 380-cst fuel oil cargoes in the Singapore trading window boosted premiums of the fuel to $8.51 a tonne to Singapore quotes, its widest premium since the so-called ‘bull play’ in June 2015 which saw trading volumes and premiums spike.
Premiums for 380-cst cargoes climbed to $7.63 a tonne to Singapore quotes on Thursday, up from $6.99 in the previous session and their highest since July 20.
Meanwhile, ARA fuel oil inventories dropped by 70 KT to 967 KT, the lowest level since April 2018.
The November 180 cst crack is stronger at +$ 1.35 / bbl with the visco spread at $ 0.95 /bbl
Click Here for a graphical depiction of Fuel Oil stocks by region.
Hedge Recommendations
Our hedges look like a sea of red given that middle and heavy distillate cracks have really strengthened and light distillate cracks have really sunk. However, unless we are confident that we are heading for a sea change in how the barrel prices out, we should have the discipline to hold the hedges.
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.