Oil Narrative
Market Overview
With majority of tankers in the AG going on dark transits, regular ship tracking has not been a reliable real-time update.
Physical crude tenders for October and November loading have shown significant uptick from the past months, with even Qatar and Kuwait offering. This is a tell-tale sign that cargoes are coming out of the Strait of Hormuz.
The shuttle trade has allowed crude and some products to evacuate quietly and shifted the risk from charterer to producers as the offers are basis FOB STS Fujairah/Gulf of Oman.
Singapore naphtha, mogas, middle distillates and fuel oil remain in backwardation, indicating tightness.
Product cracks remain at healthy levels in Asia but fell month-on-month.
However increased product supply given higher runrates due to AG crude availability leads to a weaker East vs West.
Diesel and mogas arbs opening to the West caps the downside of the Eastern prices.
From around the 20th of August, more reports surfaced of China’s increased spot crude buying (ESPO and Iraqi in particular) and securing more Saudi crude offered in a rare tender.
Correspondingly, we saw more gasoil cargoes offered in the market into September.
We will need to see higher October product export quota allocations to confirm if the increased crude buying will lead to higher exports.
More trading activity noted in the Dubai window from China players.
Singapore product cracks are still elevated currently and may face downside risks given more China products that may come out. However this is better expressed as a wider weaker E/W rather than cracks.
Refining margins globally are incredibly strong given the tight distillate situation from Middle East and Russian capacity outages.
However Asian refineries have to contend with higher exposure to eye-watering dirty freight rates, eating some of their margin.
Even so, cracking margins were comfortably in the $10/bbl zone, explaining why refineries are willing to find more alternative crude supplies if they can run them.
