*Geopolitical Angst and Rising Virus Cases Weigh in Market
The escalating tensions between China and the United States has left the market shaky. The consulate closing dispute is the latest move by the two countries which started with a trade war last year. According to data from John Hopkins University, global COVID-19 case counts have continued to rise steadily and now stands at 16.2 million, with total deaths nearing 650,000, with the US and Brazil accounting for 41% of total confirmed cases. Major economies such as Japan and Australia, which had previously succeeded in curbing infection rates are once again battling to contain a fresh wave of infections.
*Asia Fuel Market News
In the Sing VLSFO product it has followed the trend of the HSFO and flipped into backwardation on the 21st July. This has been driven by fewer shipments from the West and stock levels dropping in Singapore. That being said, the overall demand for bunker fuel remains unchanged from the previous month and any significant recovery is going to be a long process. On the supply side an increasing number of Chinese refiners will be producing VLSFO, which should more than make up for any drops in production from other Asian refiners.
For the HSFO demand has remained strong and grown from June into July. Demand has been strong from Saudi Arabia for power production and also the lacklustre availability of heavy crude. The market tightness seems to be easing slightly, with the front future crack dropping from -6.00 highs last week to -6.20 this morning.
*Mexico’s Massive Oil Hedge
The Central American country has asked wall street banks to start quoting them for its huge oil hedge. This has pushed up oil options ahead of the expected deal this week. Mexico usually executes some $1 billion in financial contracts, but with premiums higher than in previous years it is expected that they will be putting on a smaller size trade. Apparently their 2019 executed cover for 2020 was put on at $49 according to Reuters, yielding some 150 billion pesos ($6 billion).
*US Oil Rig Count Rises … Just
The US cut the total number of oil and gas rigs to a record low for a 12th straight week, down two to 251 according to Baker Hughes. They did, however, increase the oil rig count to 181. This leaves the total rig count down 695 rigs, or 73%, on this time last year.