Resurgence of the Virus
The virus is making a comeback in the United States as the number of infections rose past the 2 million mark. This has focused minds in the market on the worry of a second wave which is pushing oil contracts to their first weekly decline in seven weeks.
Asian Gasoil Cracks in the Money
Premiums for gasoil rose to 4 month highs yesterday, driven up by steadily increasing buying interest in the physical market and a tightness caused by ongoing refinery run cuts and turnaround. Singapore onshore middle distillate stocks rose 1.5% to a two-week high of 14.9 million barrels in the week ended June 10, Enterprise Singapore data showed. More disruption is likely to continue as refiners, and the oil industry as a whole, try to recover to pre-virus operations.
Cristobal Cuts
US offshore oil production in the Gulf of Mexico is down some 13%, or 242,681 bpd after the Tropical Storm Cristobal drives through the region. Natural gas production offshore has also been impacted with a 9% drop in levels. Keep an eye out for the EIA data next week, which will show us the impact on the American domestic market of this disruption.
Scrubbers Sayonara
Many ship owners are postposing or cancelling the installation of scrubbers on their vessels as the virus crisis impacts their finances. With an average cost of $2 million, a scrubber is a large investment for a vessel, let alone hundreds of millions that would be needed to equip a large fleet. Due to the squeeze on finances there is much less free cash available to order new installations, and some companies have pulled some installations to recoup much needed cashflow. Also impacting this decision has been the drop in the differential between the high sulphur and low sulphur fuel grades. A large differential as possible is needed by scrubber installed vessels to make their hardware investment worthwhile and competitive in the market. With front month derivatives now valuing the spread just above $60, it’s a far cry from the $320 we had at the start of the year.