Global Oil and Asian Product Market, September
Oil prices rose on during September on the back of the following reasons. The key points in crude market is mentioned in the following.
The International Energy Agency announced that global surplus of crude was starting to shrink, even though U.S. data showed another big increase in crude inventories due to the ongoing effects of Hurricane Harvey. Analysts say U.S. stocks data may not give a full picture in coming weeks because of two major hurricanes — Harvey and Irma. However it is obvious that hurricane caused differential between US crude grades and other grades of crude oil in the other region, to be widened. The US crude stocks increased as they couldn’t be exported due to terminals closure and lower run rates of the refinery.
U.S. gasoline and distillate stocks fell sharply as Harvey shut nearly a quarter of the nation's capacity with major Gulf Coast refineries only starting to come back to life in the last few days.
The market is reacting in anticipation of refineries restarting, at the same time expecting a decline in demand due to the after effects of Hurricanes Harvey and Irma. Overall, the IEA said in its monthly report that robust global demand and an output drop from OPEC and other producers should help balance inventories.
Asian Product Markets
During September light and Middle distillates and also fuel oil performance were healthy. The fundamentals in these markets were strong mostly due to the recent hurricane in US and cut in US inventories.
Light Distillates (gasoline, naphtha)
Gasoline cracks – differential between gasoline prices and Dubai crude prices- increased slightly. Supply in Asian gasoline market was already tight amid strong demand from Indonesia and India, and this was exacerbated by pulls from Mexico's west coast for Asian barrels and European barrels being directed to the US Atlantic Coast, leaving Asian and Middle Eastern stocks and going into US stocks. Traders believe that Asian Gasoline market without US hurricane couldn’t be strong.
Naphtha market improved largely due to the healthy fundamentals. Asian naphtha market participants expected a lower volume of October-arrival naphtha barrels from the Mediterranean to East Asia, limiting supply in the region. On the demand side, good petrochemical margins amid lack of condensate in Asia, caused the petrochemical units to keep their run rates high and try to substitute naphtha with condensate as their feedstock. Looking ahead, naphtha market will continue its strength due to cold season.
Middle Distillates (gasoil, jet fuel)
The Asian gasoil market was active during September on the back of ample buying interest and a wider EFS. Meanwhile, tighter supply has helped support the Asian gasoil market. The widening EFS had pulled barrels from Asia and the Middle East to west of Suez. On the supply side, Singapore's commercial onshore middle distillate stocks including gasoil, jet fuel and kerosene amid lower products stocks added more pressure to the market. The open arbitrage from Asia and the Middle East to west of Suez, as mentioned above, has led to a further draw on stocks.
Fuel Oil
Asian fuel oil market is healthy and expected to remain supported in the near term. The optimism stemmed from expectations of a relatively lower volume of arbitrage supply into Singapore in September and October amid steady demand, especially from the end-user bunker market. Structurally, supply in the market appeared to be tightening, with relatively less volumes from Mexico, Venezuela, the US Gulf Coast and Russia which are major suppliers.