Global Oil and Asian Product Market, June2016
Oil prices in January 2016 hit the lowest since 2008. Since then, the prices have been on a continuous upward trend increasing around 40%. As the price of crude oil came close to $ 50 per barrel for the first time in this year, market players are considering whether the near 40 per cent rally since prices bottomed in January can keep going.
The following are some points to watch that could dictate the next move in the price of crude, currently Brent and WTI are trading near $49 per barrel, while the average Dubai prices is around $ 46 per barrel.
Nigeria, largest OPEC African producer troubled - last month Militants attacked Nigerian crude oil facilities. They caused damages on both pipelines and terminals in Nigeria and hence the crude oil production of this country reached its lowest level within past 20 years. This attack was an indirect consequence of crude price fall. The growing violence in the country is largely on the back of weaker economical situation which intensified due to the two-year oil price crash. Therefore, it seems unpredictable to say when Nigeria resume the shipments from the damaged pipelines and terminals. In Libya, the other OPEC member, oil output remained depressed.
Wildfires in Canada’s oil-producing Alberta province have knocked out about 1m b/d or more than a fifth of the country’s production. Before the accident in Canada, supplies were falling due to the lower price and now it is not clear how fast this eliminated barrels will be back to the market.
According to EIA reports, US crude output is expected to fall to 8.2 million barrels per day in 2017,while we witnessed the peak of crude output last year at 9.4 million barrels per day. With higher crude prices that market is already experiencing, this loss will be moderating and hence it is not clear how much US shale production decline will affect balancing point for the crude oil price.
Demand growth will be around 1.2 mb/d in 2016, with demand reaching 95.9 mb/d.
Saudi Arabia crude oil production: OPEC’s largest producer and exporter is Saudi Arabia and it is the only country with significant spare capacity. Its crude oil production increased to 10.24 mb/d in May 2016 as compared to April 10.16 mb/d, According to OPEC monthly report. The country’s output tends to increase in the summer to deal with rising air-conditioner use when temperatures in Saudi Arabia reach scorching levels and the market may need to wait a few months to get a clearer idea whether Saudi Arabia will scale back its summer output as it did last year or keep the taps open.
Asian Product Markets
Products market fundamentals in brief
June 2016
Light Distillates
Middle Distillates
Heavy Products
Gasoline
Naphtha
Gasoil
Jet Fuel
Fuel Oil 180 & 380 cst
(Upward arrow: strength, downward arrow: weakness)
Light Distillates (gasoline, naphtha)
During June, the Asian gasoline crack – differential between Singapore gasoline prices and Dubai crude prices- slumped to a 16-month low amid continued oversupply and rebounding crude prices. While demand remains healthy, pressure from the supply-side has continued to build recently, with high exports from major refining hubs such as China and South Korea contributing, although outflows from Japan have eased notably in the last three weeks. Despite this supply weakness, the possibility of run cuts remains relatively low considering the recovery of the middle distillate complex in recent months as well as the fact that gasoline cracks typically have to push a little higher over the summer to satisfy seasonal demand.
Singapore naphtha cracks moved lower for six consecutive months during June and hit a one year low. Soft demand from the gasoline-side, seasonal switching to LPG and a persistent glut continue to weigh on the market. While the West/East naphtha arbitrage spread remains closed on paper, European cargoes continued to move to the east, especially heavy naphtha grades and volumes from the Black Sea. Meanwhile, Asian ethylene-naphtha spreads fell to four-month lows amid a weakening ethylene market that is suffering from elevated Atlantic Basin and Middle Eastern inflows, as well as rebounding domestic production following the spring cracker maintenance season. However, the impact on cracker operations and feedstock markets will likely be limited as spreads remained well above typical breakeven levels.
Middle Distillates (gasoil)
Gas oil cracks improved on the back of firming demand and supply fundamentals, bringing it close to gasoline crack . On the demand-side, Vietnam and South Africa were actively buying gasoil, while a brief reopening of the arbitrage to Europe (amid French refinery strikes) saw some cargoes moving to the West. Furthermore, reportedly thinner supply from both South Korea and Taiwan offered support.
Fuel Oil
Fuel oil cracks were on a downward trend since January 2016. This was partly due to reduction of floating storage that brought barrels back into markets, while also pushing Singapore onshore stocks to new lower record levels. In addition, buying interest on the part of South Korea was relatively strong.