Global Oil and Asian Product Market, January
Oil prices continued to rise on expectations that OPEC will cut output in 2017. OPEC agreement has been still underpinning the market and the price rose to its 17 month high during January. However, the global crude and condensate surplus is expected to move towards seasonal peak in April and decrease in the prices. Moreover, growing supplies of light crudes from the Caspian, Libya, and Nigeria as well as positive supply and investment news in the North Sea may have put some structural pressure on the crude prices. On the other hand, producers of shale oil are seeking to increase output to take advantage of higher crude price.
At the beginning of January as usual in each month, Saudi Aramco pricing adjustments for term crude loading in February was announced. It showed quite a marked divergence between Atlantic Basin markets compared to Asia. The positioning of prices in Europe and Asia can be seen as a reflection of the changes in the regional crude balances.
According to the news, Ras Laffan 2 started commercial production at the end of December. The refinery is planned to ramp up to full capacity of 146 kb/d very soon. Its feedstock is the Qatari condensate which is called Deodorized Field Condensate (DFC). As a result, the region will miss a considerable amount of condensate which will support market of its Iranian fellow. Iran South Pars Condensate is produced from the world's largest gas field, shared between Iran and Qatar. Iranian S.P. Condensate is expected to witness boom days in the coming months on the back of Qatari supply limitation and Iranian new production, as well. The development plan of the rest of the phases of the S.P. gas field is aimed at promoting the position of Iran to be the leading market in supply of condensate.
Asian Product Markets
Light Distillates (gasoline, naphtha)
Lighter products had strengthened relative to the bottom of the barrel over January. Naphtha market mostly supported by technical problems at 146,000 kb/d Ras Laffan 2 refinery. The refinery was supposed to add 61,000 barrels of naphtha per day to the market in December. However, there was some delay for the refinery to come under operation. Apart from January naphtha market, in the year 2017 the balance of regional naphtha is likely to tighten due to the expected increase in demand. Naphtha demand will be supported due to the Sadara and PetroRabigh.
Gasoline market improved slightly over January. This situation is mostly a seasonal norm in gasoline market. Looking ahead in the year 2017, the big event in gasoline supply would be Persian Gulf Star refinery in Iran. The distillation unit of the Persian Gulf Star Refinery came on stream in October, gasoline producer unit is planned to start its operation in the coming months and will convert Iran from an ongoing importer of gasoline to balance.
Middle Distillates (gasoil)
Gasoil refining margins rose as demand emerged from Vietnam, Indonesia, Sri Lanka and Kenya. The market was strong during January. However, the outlook for the year 2017 is bearish. It is expected to see more supply than demand in the region tightening the margins.
Jet fuel market rose slightly due to the firm gasoil market. Its fellow middle distillates product helped the market to improve. Moreover, seasonal buying in January and Lunar New Year holiday in China supported the market more.
Fuel Oil
The January fuel oil market weakened slightly. The expected high volumes heading from Europe to Singapore created a bearish sentiment, while additional pressure came from an increase in Singapore stocks over the month. However, the forward curve remained in backwardation, indicating strong prompt fundamentals.