*Narrowing Fuel Oil Contango
The dropping contango structure of the fuel oil curve may encourage traders to offload stored supplies of fuel to protect against falling future margins. The front Aug/Sep spread was marked at flat this morning, as the VLSFO market followed the lead of the HSFO in moving from contango back into backwardation. The cost of storing fuel oil in a VLCC – floating storage – is around $2-3 per mt and for onshore storage $5-6, much higher than the current front month spreads. This change in market condition should therefore push holders of fuel supplies to try to offload before the spread moves further against their interests.
*Iraq Increases Oil Exports
Iraq apparently has not been sticking to its OPEC+ cut agreement pledge. It’s July exports, according to shipping data, averaged 2.7 million bpd according to figures from Refinitiv Eikon, unchanged from June figures. Under the terms of the OPEC+ cut agreement, Iraq should be cutting some 1.09 million bpd. So, if you find that the numbers aren’t adding up in terms of agreed cuts and what is actually being produced out there, you probably don’t have to look to far past Iraq to find your culprit.
*Saudis Burn the Midday Oil
With midsummer upon the Middle Eastern country, and with lockdown measures restricting the movements of people, this had led to a spike in the energy consumption to power their air conditioners. Temperatures can sometimes push above 50 degrees Celsius and with many cancelling their holiday plans away, they have had to make do with what home has to offer. This has increased the demand for crude and fuel to burn in these power plants to record levels.
*Asian Cracks at Highest in a Month
Margins for the 10ppm gasoil climbed to their highest in a month on a stronger physical market and increasing transportation costs. Refining margins or cracks for gasoil with 10 ppm sulphur rose 60 cents to $7.22 a barrel over Dubai crude during Asian trading hours, the highest level since
June 18, according to Reuters.