*Crude Holds Above $42*
Oil this morning is holding onto recent gains, staying above the $42 mark on Brent. Brent crude’s prompt spread was in backwardation for a third day, a bullish market structure that indicates tightening supply. It flipped from contango on Thursday for the first time since March. Meanwhile in the US oil exploration shrank for a 14th straight week, reducing the number of active rigs to the lowest level since 2009. Drillers idled 10 machines in onshore fields last week, bringing the total number of working units to 189, according to data released Friday by Baker Hughes.
*China’s LSFO Contract Rises on Debut*
China’s new low-sulphur fuel oil (LSFO) futures contract jumped sharply in its debut, rising more than 13% at its opening on the Shanghai International Energy Exchange on Monday. The January contract was last trading around 11.5% higher at 2,640 yuan ($373.37) per tonne, versus a listing price of 2,368 yuan per tonne.
*Fuel Oil Movers and Shakers*
On the 0.5% end-user bunker market side, market participants expect further downward pressure due to oversupply and continued weak demand. Traders estimate that it would take at least two to three months for the current oversupply situation to ease, assuming a pickup in demand, without accounting for the steady inflow of arbitrage cargoes. HSFO is holding strong due to good demand for straight run high sulphur fuel oil for feedstock and ongoing run cuts. This has been reflected in a strong HSFO crack, currently at -5.90.
*China’s A Strong Independent Refiner*
Refiners in the People’s Republic of China now have the capacity to produce 18.1 million tonnes of 0.5% IMO compliant fuel oil. 20 refineries, mostly run by Sinopec, PetroChina, CNOOC and Sinochem now have the capability to supply for China’s shipping needs. They had previously replied on imports from Singapore, but due to tax changes and an impetus on production they have moved to a position of self-reliance.