Daily Oil Market Report - 22nd October 2018

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Healthy Asian demand: Crude prices were little changed trading within a $1 range and they settled 5c higher. Markets remained quite despite headlines in the morning that Saudi is planning to produce 11 mmbd very soon. There was also headlines that production in Libya and Iraq is going very smoothly and increases are very imminent. Excluding Iran, things are going very smoothly for other producers and many record highs are being set.

We got data from India and China. Indian demand is still healthy despite their soaring fuel prices and the depreciating currency. Indian oil demand rose 60KBD y-o-y, the slowest yearly growth since September. However, YTD their total demand is still up 5.5%.

Chinese NBS data was out as well and we talk about the soaring Chinese refinery runs in greater detail below in the Chart of the Day section.

ICE released their Permian futures for trading today. This should be a very successful contract once liquidity picks up. As anyone who wants to trade WTI/Brent can remove the Cushing risk by trading Permian on a Brent basis. We look forward to analyse this market further.

Brent structure had a big drop despite the relatively little move in the overall flat price. Brent front spread was down 12c and it has erased the gain we saw late last week. The WTI contango is spreading into further parts of the curve with M7-M8 now also into contango. Brent structure had been isolated due to the strong Asian demand for grades like Forties. However, weak European margins is beginning to take a toll into Brent spreads. Jan/Feb and Feb/Mar settled at 11c and 10c respectively. There is still a lot of spec length sitting on Brent and if these spreads enter into contango territory, expect a brutal sell off.

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CHART OF THE DAY

Chinese Data: The latest data from the National Bureau of Statistics had some eye opening numbers. It is very hard to verify the Chinese data as they don’t release stock inventory numbers. However, if you believe it at face value the September refinery runs has shown a huge jump of over 600KBD. This is a new record high and impressive given the new refinery startup at Hengli is on trial runs. Hengli is expected to fully start up this quarter which will make runs go even higher, one of the reason why physical crude markets in Asia is very strong. Aside from Hengli, there are other small refinery start ups that can increase crude intake a further 150KBD. We might see a 13MMBD print in the month data very soon. If Chinese product demand fails to keep up, these extra products will enter the international market and put pressure on refinery margins globally.

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