From: Wagner, Jonathan
Sent: Thursday, September 20, 2018 6:46:25 AM (UTC-06:00) Central Time (US & Canada)
To: Wagner, Jonathan
Subject: ION Morning Rundown

Good morning.  Brent prices were moving back up towards $80 and right on que we get the Trump tweet saying that the “OPEC monopoly must get prices down now!”  You have to think that the market expected this after yesterday’s rally but at the end of the day, stocks are drawing, physical diffs are strengthening and demand is still looking good.  Yesterday’s DOE stats showed crude stocks falling to their lowest level since 2015 while Cushing stocks continues to draw (-2.5m bbls over the past two weeks).  Front end WTI spreads continue to move higher as today is Oct Futures expiry.  Front rolling WTI also broker through recent resistance which could bring more technical buying.  If prices continue to move higher in the back of our minds we are also thinking about Trump using an SPR release ahead of midterm elections…. With that being said, four OPEC sources have said that OPEC+ are unlikely to agree to increased oil output at the upcoming meeting in Algeria.  Russia continues to pump away as current production has hit a new post-soviet era high of 11.3nm b/d (driven by increased Rosneft output).  While Russia could boost its production by about 300,000 barrels a day above the October 2016 record within a year, there’s still no decision on tapping this spare capacity and the size of the increase will depend on talks with the wider OPEC+ group, Russian Energy Minister Alexander Novak said last week.  Iran said today that they would veto any OPEC decision which continues to cut their market share… Best of luck..  as Cartman once said, “Whatever… I do what I want.”  Japan refiners have temporarily halted Iranian oil loadings as US sanctions are scheduled to take full effect according to the chairman of Idemitsu Kosan.  India’s Chennai Petroleum said they will stop processing Iranian crude from Oct to keep its insurance coverage once the new sanctions go into effect.  Iran’s Naftiran Intertrade Co Ltd, a trading arm for state-owned National Iranian Oil Co, owns a 15.4 percent stake in Chennai Petroleum, which has two refineries with a total combined capacity of 230,000 barrels of oil per day (bpd).  While Iranian exports continue to be cut, Iraq’s southern exports continue to increase.  Southern Iraqi exports in the first 19 days of September averaged 3.6 million barrels per day, according to ship-tracking data compiled by an industry source, up 20,000 bpd from August’s 3.58 million bpd – the existing monthly record.       


Middle east cash crude prices fell today as Cash Dubai is trading +1.33 over swaps.  For a third day, Total offered Murban crude for loading between Oct. 15 and Nov. 15 from China’s Yangpu oil storage.  It reduced its offer for Murban loading from China’s Yangpu oil storage to 85 cents a barrel above the November official selling price (OSP) on Thursday, down from $1 in the previous session.  The Murban offer has become attractive as it is cheaper than Russian ESPO crude which has seen a big jump in spot premiums.  20 Nov Dubai partials traded in the window with Chinaoil, Reliance and Unipec selling to Glencore, Vitol, BP, Shell and Petro-Diamond.  Front end Dubai spreads have weakened to 70c back while Oct/Nov Dubai spreads are also trading 70c back.      


Front Rolling WTI


DOE Total Crude Oil Inventory (excluding SPR)


Cushing Stocks


Top stories listed below

China Is Said to Plan Broad Import Tax Cut as Soon as October

China urges U.S. to show sincerity, correct behavior in trade actions – Reuters News

Iran Warns It Will Veto OPEC Decisions Harming Its Interests

OPEC’s Decade of Turmoil Leaves Cartel Seeking a New Way Forward

Russia Is Said to Set New Oil Output Record Ahead of OPEC Talks

Guards shut airport at Libyan Wafa oilfield-NOC – Reuters News

Iraq’s southern oil exports approach record high in Sept-sources – Reuters News

Indian oil refiner part-owned by Iranian company cancels Iran oil imports – Reuters News

Indian oil refiner part-owned by Iranian company cancels Iran oil imports – Reuters News

Japan’s oil refiners temporarily halt Iranian loadings on sanctions threat -PAJ – Reuters News

Middle East Crude-Benchmarks ease; ESPO at 4-year high – Reuters News

Strong China demand pushes Russian ESPO crude oil premiums to 4-yr high – sources – Reuters News

Nigeria Raises Qua Iboe, Bonny OSPs for October to 6-Month Highs

Chinese refiners get a breather as crude oil excluded from the tariff list – Platts

Argus starts price assessments for crude deliveries to China teapots – Reuters News

VLCC Sails to Cochin, India, After Loading at LOOP

Brent-Dubai Spread May Near $10 on IMO 2020: Oxford Institute

Canada speeds up timeline for stronger rail cars for crude – Reuters News

U.S. Uncompleted Wells to Drop in 2019 on Transport Growth: JBC

U.S. Cash Crude-Coastal crude grades weaken while Midland prices surge – Reuters News

U.S. Cash Products-Group Three gasoline rises to almost 3-yr high – Reuters News

Asia Distillates-Gasoil cash premiums continue uptrend, touch new peak – Reuters News

China diesel demand picks up at fastest pace in at least five years – Reuters News

Singapore Weekly Fuel Stockpiles for Sept. 19 Rise 1.7% w/w



Implied Vol

Realized Vol










































































Front Rolling WTI Implied ATM Vol



Implied Vol

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Front Rolling Brent Implied ATM Vol



WTI Most Actively Traded Options


Brent Most Actively Traded Options


ICE/CME Mixed Clearing Recap

WTI/BRT M19 ATM Call Roll x68.50/77.00 TRADES 50 300x 60d/60d


ICE Trade Recap

BRT X18 79/80 1×2 Call Spread TRADES 16 1,500x

BRT X18 79/80 1×2 Call Spread TRADES 18 2,000x

BRT X18 82 Call x78.65 TRADES 16 1,000x 11d

BRT Z18 ATM Call x78.50 TRADES 249 500x 50d

BRT Z18 ATM Call x78.00 TRADES 247 500x 50d

BRT Z18 78/73 1×1.5 Put Spread x78.25 TRADES 132 1,000x 18d

BRT G19/M19 ATM Call Roll x77.50/76.50 TRADES 189 700x 52d/54d

BRT G19 52 Put TRADES 5 500x

BRT M19 60/70/80 Put Fly x77.00 TRADES 220 500x 9d

BRT Z19 65/70/75 Put Fly x74.90 TRADES 45 850x 2d


CME Trade Recap

WTI X18 65.50/75 Strangle TRADES 92 999x

BRT X18 78/79 Fence x78.90 TRADES 34 1,050x 84d

WTI Z18 71 Call x70.30 TRADES 235 600x 50d

WTI Z18 65 x69.65 TRADES 102 1,000x 21d

WTI Z18 68 Put x70.50 TRADES 163 500x 34d

WTI Z18 60/75 Fence x67.00 TRADES 53 450x 63d

WTI Z18 69.50/64 1×2 Put Spread x69.50 TRADES 104 600x 9d

BRT M19 70 Put x76.90 TRADES 313 1,100x

WTI M19 70 Call x68.75 TRADES 477 1,000x 56d

WTI Z19 50/85 Fence x67.00 TRADES 11 600x 27d


CSO/ARB/APO Trade Recap

WTI CSO V/X18 0.25 Put (WA) TRADES 1 500x

ARB Z18 -5.00/-12.00 Fence TRADES 7 300x

ARB Z18 -5.00/-10.00 Strangle TRADES 34 500x

WTI APO X18 70 Call x69.25 TRADES 228 100x 46d

WTI APO 1H19 55 Put TRADES 92 2x; TRADES 100 2x

WTI APO Cal19 63/73 Fence x68.25 TRAES 8 30x









China Is Said to Plan Broad Import Tax Cut as Soon as October

China is planning to cut the average tariff rate that it charges on imports from the majority of its trading partners as soon as next month, two people familiar with the matter said. 

*The people asked not to be named as the matter isn’t public

*The Ministry of Finance didn’t immediately respond to a request for comment on the matter

*China’s most-favored nation average tariff currently stands at 9.8 percent. The MFN rule requires all countries, to be treated equally unless specific exceptions are agreed. The U.S. is also covered by MFN status

*Separately, China is due to raise tariffs on $60 billion of imports from the U.S. on Sept. 24, in retaliation to a U.S. move, as part of the ongoing trade conflict between the two nations


China urges U.S. to show sincerity, correct behavior in trade actions – Reuters News

China hopes the United States will show sincerity and take steps to correct its behavior, its commerce ministry said on Thursday, after both countries slapped new tariffs on each other’s goods this week in an escalating trade war.  China has been forced to take retaliatory measures against the United States and to defend its interests, ministry spokesman Gao Feng said at a weekly news briefing in Beijing.  U.S. President Donald Trump on Tuesday threatened further retaliation against China if Beijing targets U.S. agricultural or industrial workers amid their trade dispute, and accused China of trying to sway the U.S. election by targeting farmers.  China is studying targeted measures to help foreign firms in China in response to the effects of the latest U.S. tariffs, Gao said.


Iran Warns It Will Veto OPEC Decisions Harming Its Interests

Iran said it will veto any OPEC decision that harms the Islamic Republic and warned that some oil producers are trying to create an alternative suppliers’ forum that supports U.S. policies hostile to the government in Tehran.  Oil Minister Bijan Namdar Zanganeh said the agreement that the Organization of Petroleum Exporting Countries and allied producers reached in 2016 to cut output is in tatters, and an OPEC committee set to meet this weekend in Algiers has no authority to impose a new supply arrangement.  “I will block any OPEC decision that poses the slightest threat to Iran,” Zanganeh said, without specifying possible actions he might take. Any decision on a new production agreement by OPEC’s Joint Ministerial Monitoring Committee that meets on Sunday would be “void” and “invalid,” he said. “Decisions can only be made at OPEC meetings in the presence of all OPEC members and by consensus of members.”


Growing Isolation

Zanganeh’s comments reflect Iran’s concern at its growing isolation within OPEC and the U.S.-led campaign to throttle its oil exports with sanctions. A flourishing partnership between its arch-rival Saudi Arabia and Russia shows signs of eclipsing OPEC’s preeminence as a global source of crude. Tehran sees Saudi Arabia, the group’s largest member, as conspiring with other producers to steal its market share. At the same time, Iran’s traditional ally within OPEC — Venezuela — is struggling to stave off economic collapse.  While Iran’s warning raises the risk of public disarray at the next OPEC meeting in Vienna in December, it’s unlikely to make much difference to the group’s production. Individual OPEC members can choose to pump at will, regardless of the group’s policy.  Pressure on Iran has intensified since U.S. President Donald Trump pulled out of the diplomatic accord that Barack Obama negotiated to curtail Tehran’s nuclear program. U.S. sanctions on Iran’s oil sales take effect on Nov. 4, and Trump has vowed to curb exports from OPEC’s third-biggest producer to zero. Iranian crude shipments have already plunged about 35 percent since April, according to Bloomberg tanker tracking data.  “Any country that says it can make up for the shortfall in the market is siding with the U.S.,” Zanganeh told reporters in Tehran. He said he has written letters to some OPEC and non-OPEC oil ministers expressing his concerns and has complained to the group’s secretary-general about “violations” to the original output-cuts agreement, though he wouldn’t elaborate.  “I think Mr. Trump made this decision to bring Iran’s exports to zero without any consultation with any experts, not even in his own government,” he said. “He’s realized lately that this is not doable. So, they are looking for a symbolic export of zero, if they can, even for just one month.”


No Deal

Zanganeh said he won’t be attending the Algerian JMMC meeting, which is to occur just days before the two-year anniversary of OPEC’s decision to pare production and curb a glut. Russia and other suppliers agreed in December 2016 to join OPEC in trimming output. The cuts had their intended effect, and in June of this year Saudi Arabia and Russia decided to change course and boost supply to stem a price rally.  “The agreement doesn’t really exist anymore. It’s finished,” Zanganeh said. Russia initially cut 300,000 barrels a day of production but then added it all back, he said. “There’s no agreement left, really.”  The current supply-cuts deal expires automatically at the end of this year, unless producers replace it with a new one. When OPEC and its allies agreed in June to boost output, they didn’t specify country quotas. Saudi Arabia and Russia said the increase would be about 1 million barrels a day.


‘Anti-Iranian Policies’

Two OPEC members are seeking to damage the group and carry out “anti-Iranian policies” at the behest of the U.S., Zanganeh said. He didn’t identify the countries. Saudi Arabia and the United Arab Emirates are the staunchest backers of the U.S. within OPEC and are aligned politically against Iran in the Middle East.  The U.S. and some other OPEC members will probably increase crude supplies from their inventories to keep a lid on prices ahead of the American mid-term Congressional elections in November, he said.  Oil prices are trading near their highest in two months in London, at almost $80 a barrel, as demand concerns arising from U.S.-China trade tensions are countered by supply losses from Iran to Venezuela. Oil at $80 a barrel is a “suitable” price, Zanganeh said. Although Sunday’s gathering in Algiers is a committee review, rather than a full-scale official OPEC meeting, most major producers will attend.  Iran’s crude production dropped by 150,000 barrels a day to 3.58 million a day in August, OPEC’s research department said earlier this month in a report. Saudi Arabia bolstered supplies again to 10.4 million a day, according to the report.

OPEC’s Decade of Turmoil Leaves Cartel Seeking a New Way Forward

A global recession, both $140 and $30 oil, the U.S. shale revolution, a market-share war, and output cuts. OPEC’s 60-year history has rarely confronted a more challenging period than the past decade.  Now, instead of enjoying the higher prices resulting from 18 months of joint production cuts with a coalition of other major producers, the cartel faces new problems. A tweet-happy American president is ramping up geopolitical risk, renewed sanctions are hammering Iran’s exports, Venezuelan production is tanking as its economy collapses, and a political attack from Washington in the form of the NOPEC bill.  The alliance of exporters, spearheaded by Saudi Arabia and Russia, meets on Sunday in Algeria to consider its response to these challenges, while also taking the next steps to cement their alliance into 2019 and beyond. The Organization of Petroleum Exporting Countries response to crises over the past decade offer clues to the path it might take forward.

Global Crisis

Ten years ago, a banking crisis triggered a global economic downturn and a crash in oil prices as demand was obliterated. After peaking at a record $147.50 a barrel in July 2008, Brent crude fell as low $36.20 by year-end. Facing catastrophe, OPEC members put aside internal squabbles and agreed production cuts that were historic in their speed and scale — output fell 16 percent in just eight months. It worked, and prices began to recover in 2009 even as the world was mired in recession. After Chinese consumption came roaring back in 2010, the group was able to open its taps again as the cost of crude surged back toward $100.


Shale Boom

From 2011 onward, OPEC enjoyed years of riches and relative stability as oil traded near $100 a barrel, but a threat was emerging. A new generation of wildcatters from North Dakota to Texas was deploying innovative fracking technology to tap previously inaccessible shale oil deposits. OPEC was blind to the danger at first, then downplayed the risk even as some members raised the alarm — reasoning that shale was an expensive business and the cartel simply had to bide its time. By mid-2014, U.S. production had jumped more than 50 percent, crude prices were teetering on the brink and it was clear this new industry was reshaping the global market as OPEC stood by and watched.


Price War

By late 2014, there was a global oil glut, prices were collapsing and U.S. shale was showing no sign of slowing. Pressure increased on OPEC to respond as it had done in 2008 and cut output, but Saudi Arabia had a different plan. Driven by a combination of hubris and grievance — the kingdom thought it could easily vanquish high-cost shale and was sick of shouldering the burden of stabilizing prices alone — energy minister Ali Al-Naimi rejected requests from fellow members and opened the taps in a war for market share. At first it seemed to work — the price slump worsened and put immense financial pressure on OPEC, but also triggered a collapse in U.S. drilling and forced producers to close the taps.


Alliance with Russia

By mid-2016, Al-Naimi’s gambit looked like a failure. Crude still languished near $40 a barrel, putting some OPEC members on the brink of economic collapse. However, U.S. production was rising again after drillers made huge cost cuts and bloated crude stockpiles threatened to depress prices for years to come. A new Saudi minister, Khalid Al-Falih, was appointed and set about engineering a historic agreement including major producers from outside the group. By late 2016, he had secured the cooperation of 10 other nations, most importantly Russia, who agreed to remove 1.8 million barrels a day of supply from the market. Thanks to this deal, crude has staged a spectacular recovery from its bruising slump. In April, OPEC and its allies concluded they had achieved their goal of re-balancing the market and even higher prices beckoned.



If only it was that simple. OPEC’s moment of celebration faded fast as U.S. President Donald Trump threw a spanner in the oil market. Accusations on Twitter that the cartel was artificially inflating prices were followed by his renewal of sanctions on Iran’s exports and additional penalties that worsened the decline of Venezuela. Within a month, Saudi Arabia and Russia were signaling their intention to roll back the cuts, and in June they successfully pressured the rest of the group to agree. After 18 months of fairly harmonious supply restraint, some OPEC members were hastily reopening the taps, while others howled in protest from the sidelines.


What Next?

Where does OPEC turn now? Lessons from the group’s history point eastwards, toward a permanent partnership with Russia, said Harry Tchilinguirian, head of commodity strategy at BNP Paribas SA. It’s the most effective counterbalance to the shale revolution, which continues to reshape the market, he said.  "U.S. shale oil will be reaching the Atlantic Basin, and Asian markets alike, more regularly and in greater volumes as pipeline connections to the Gulf Coast and oil terminals are built or expanded,” Tchilinguirian said. This competitive challenge, along with demand dynamics that accompany the transition to cleaner energy, give OPEC an incentive to establish a permanent relationship with Russia and a growing number of non-members, he said.  Whether such an alliance would actually prove effective at managing the market in the long term is another matter, said Bob McNally, president of Rapidan Energy Group.  "The jury remains out as to whether this new Saudi-Russia led entity will succeed longer term at preventing future booms and busts or, like a number of other temporary ad-hoc cartels since oil’s earliest days, it will succumb to greed and indiscipline," McNally said.


Russia Is Said to Set New Oil Output Record Ahead of OPEC Talks

Russia’s oil production is fluctuating between 1.54m-1.55m tons a day (11.29m-11.36m b/d), setting new post-Soviet records driven mainly by gains from Rosneft, according to a government official asking not to be identified as information isn’t public yet.

If production remains at current level Russia may raise its 2018 output target to 555m tons vs current estimate of 553m tons

That would mean adding ~2m tons in remaining ~100 days vs earlier target (almost 150k b/d)

Rosneft has been increasing crude production rapidly, company’s official says without providing details

Russian Energy Ministry, Rosneft didn’t immediately comment on September output

Interfax news agency first reported Monday that Russia’s crude output averaged ~11.33m b/d in 1st half of September; August production was ~11.21m b/d

Russia’s post-Soviet record in oil production was set in October 2016 at ~11.25m b/d

Russian Energy Minister Alexander Novak said last week that country is able to add ~300k b/d to October 2016 level within ~12 months yet no decision on tapping this spare capacity before talks with partners from OPEC+ group

Novak meets OPEC+ ministers on 4Q forecasts, cooperation beyond 2018 in Algeria on Sept. 23


Guards shut airport at Libyan Wafa oilfield-NOC – Reuters News

Libyan state guards have closed the airport of the southwestern Wafa oilfield, co-owned by Italy’s ENI ENI.MI, state oil firm NOC said on Thursday.  The operator will be forced to shut down the field which produces around 40,000 barrels a day of crude and condensates as well as 400 million cubic feet of natural gas should the closure continue, NOC said in a statement.  The statement published on Thursday said it had planned to evacuate all workers by the previous afternoon unless the airport needed to supply the field reopened.  It was not immediately clear whether this had happened.  NOC said the protesters were planning to "extort" Mellitah, the joint-venture between ENI and NOC running Wafa and other operations, without giving details.  "NOC denounces the criminal and irresponsible act which damages the local economy," NOC said, adding that it would not negotiate under pressure.  Guards, paid by the state to protect oil faculties, as well as other groups regularly seize oilfields to pressure weak authorities into giving them extra pay and benefits, part of chaos in the OPEC producer since 2011.  NOC and other government entities have agreed in the past to some demands in the end to keep oil and gas exports flowing, Libya’s only source of income.


Iraq’s southern oil exports approach record high in Sept-sources – Reuters News

Oil exports from southern Iraq are heading for a record high this month, two industry sources said, adding to signs that OPEC’s second-largest producer is following through on a deal to raise supply and local unrest is not affecting shipments.  Southern Iraqi exports in the first 19 days of September averaged 3.6 million barrels per day, according to ship-tracking data compiled by an industry source, up 20,000 bpd from August’s 3.58 million bpd – the existing monthly record.  The increase follows June’s pact among OPEC and allied producers to boost supply after they had curbed output since 2017 to remove a glut. Iraq in August provided OPEC’s second-largest increase as shipments drop from Iran, which is facing renewed U.S. sanctions.  A second industry source who tracks shipments also said exports this month had averaged 3.6 million bpd, reflecting smooth operations at export terminals and no sign that unrest in Basra, Iraq’s second city, was disrupting flows.  "There were fears that the protests would get to the terminal," this source said. "But so far, there is no impact."  Protests in Basra against Iraq’s political elite erupted in July. In early September, Basra airport was attacked with rockets a6nd protesters briefly took oilfield workers hostage.  Before the June OPEC deal, Iraq had been boosting exports from southern terminals to offset a halt in shipments from the northern Kirkuk region last October after Iraqi forces seized control of oilfields there from Kurdish fighters.  Northern exports have held steady in September, averaging around 400,000 bpd so far, according to shipping data and one of the industry sources. This is up from about 300,000 bpd in July but short of levels above 500,000 bpd in some months of 2017.  On June 22-23, OPEC, Russia and other non-members agreed to return to 100 percent compliance with output cuts that began in January 2017. That amounted to an increase of about 1 million bpd, according to OPEC’s de facto leader, Saudi Arabia.  A group of OPEC and non-OPEC ministers and officials monitoring the agreement are meeting on Sunday in Algeria and will discuss proposals on how to divide the increase, sources have told Reuters.  Iraq has said it is ready to boost output and in August pumped an extra 90,000 bpd, OPEC’s second-largest increase after Libya, according to analyst and oil-industry media estimates compiled by OPEC. Iraq itself said production in August was steady.


Indian oil refiner part-owned by Iranian company cancels Iran oil imports – Reuters News

India’s Chennai Petroleum CHPC.NS will stop processing Iranian crude oil from October to keep its insurance coverage once new sanctions by the United States against Iran go into effect, three sources familiar with the issue said.  Iran’s Naftiran Intertrade Co Ltd, a trading arm for state-owned National Iranian Oil Co, owns a 15.4 percent stake in Chennai Petroleum, which has two refineries with a total combined capacity of 230,000 barrels of oil per day (bpd).  In May, U.S. President Donald Trump pulled out of an international nuclear deal with Iran and announced new sanctions against the country, the third-largest producer among the Organization of the Petroleum Exporting Countries (OPEC). Washington is pushing allies to cut Iranian oil imports to zero once the sanctions on the petroleum sector start up on Nov. 4.  United India Insurance has informed Chennai Petroleum that its new annual policy that is set to take effect from October will not cover any liability related to processing crude from Iran, the three sources said. This has forced the refiner to cancel a scheduled loading of 1 million barrels in October, they said.  Indian insurers do not fall directly under the sanctions, but need to hedge their own risk on the Western reinsurance market, which will not accept Iranian exposure.  "It is quite complicated.. reinsurers are quite apprehensive about extending cover for Chennai Petroleum," said one of the sources, who asked not to be identified because of the sensitivity of the issue.  Chennai Petroleum’s reduced demand will further cut India’s imports from Iran to about 10 million tonnes in October, lower than previous estimates reported by Reuters.  "Reinsurers have said they cannot provide full 100 percent cover. They have agreed to provide support for only 85 percent cover," said a second source, who also declined to be identified.  Chennai Petroleum, a subsidiary of the country’s biggest refiner Indian Oil Corp (IOC) IOC.NS., has a deal to buy up to 2 million tonnes, or 40,000 bpd, of oil from Iran in the fiscal year 2018/19.  IOC imports oil on behalf of Chennai Petroleum.   Chennai Petroleum and United India Insurance did not respond to requests for comment.  With Chennai’s absence, Iran is left with just two Indian clients, Managalore Refinery and Petrochemicals Ltd MRPL.NS, and IOC.  State-owned refiner Hindustan Petroleum Corp has already halted purchases due to insurance problems, while Bharat Petroleum Corp boosted Iranian purchases earlier this year and expects to sharply cut Iranian flows once the sanctions take effect.  Nayara Energy is also preparing to halt Iranian imports from November, while Reliance Industries and HPCL-Mittal Energy Ltd have already stopped buying Iranian oil.



Japan’s oil refiners temporarily halt Iranian loadings on sanctions threat -PAJ – Reuters News

Japanese oil refiners have temporarily halted Iranian oil loadings ahead of U.S. sanctions and are buying alternatives as it remains unclear whether Japan will receive an exemption, the head of the country’s refinery association said on Thursday.  The United States has demanded that nations cut all their Iranian oil imports when sanctions on the country’s petroleum sector over Tehran’s nuclear program are re-imposed on Nov. 4.  "It is my view that each firm is taking the same stance and temporarily suspending (the loading) and watching the situation carefully," Takashi Tsukioka, the President of the Petroleum Association of Japan (PAJ), said when asked if Japanese refiners plan to halt Iranian loadings from October.  Tsukioka, who also serves as chairman of refiner Idemitsu Kosan 5019.T, however, did not comment on the details of each refiner’s reaction.  Many refiners in Japan, the world’s fourth-biggest oil consumer, say they are resigned to completely halting imports from one of their historically important suppliers, unlike during a previous round of sanctions when they only reduced imports from Iran.  Iran is an important supplier of oil to Japan, accounting for about 5 percent of its crude imports, and Japanese refiners, together with the government, will try to maintain its good relationship with the Middle Eastern country, said Tsukioka, adding that the U.S. sanctions will not cause a major impact.  Tsukioka said in July that Japanese oil refiners would likely stop loading Iranian crude oil from mid-September, with final shipments to arrive in the first half of October.

Middle East Crude-Benchmarks ease; ESPO at 4-year high – Reuters News

Middle East crude benchmarks eased on Thursday as trade for November-loading cargoes slowed, while Russian ESPO premium hit its highest in four years on robust China demand.  For a third day, Total offered Murban crude for loading between Oct. 15 and Nov. 15 from China’s Yangpu oil storage.  It reduced its offer for Murban loading from China’s Yangpu oil storage to 85 cents a barrel above the November official selling price (OSP) on Thursday, down from $1 in the previous session.  Traders said the Murban offer has become attractive as it is cheaper than Russian ESPO crude which has seen a big jump in spot premiums.  Still, Chinese buyers typically prefer ESPO rather than Murban, and it remains to be seen if they will start switching grades.

WINDOW: Cash Dubai’s premium to swaps fell 11 cents to $1.33 a barrel. Reliance will deliver an Upper Zakum cargo to Shell.


Strong China demand pushes Russian ESPO crude oil premiums to 4-yr high – sources – Reuters News

Spot premiums for Russia’s ESPO Blend crude oil have hit their highest in more than four years, buoyed by a jump in Chinese demand, multiple trade sources said on Thursday.  Producers Surgutneftegaz and Gazprom Neft have sold three cargoes loading in the first week of November at premiums of $5 to $6 a barrel to Dubai quotes, the sources said, up to $2 higher than deals the month before.  The premiums are the highest since 2014 and have overtaken those for better-quality Russian grade Sokol, according to the sources and Reuters data.  The companies could not immediately be reached for comment.  "It’s quite unusual for ESPO to trade higher than Sokol as it has a higher sulphur content … than Sokol," said a China-based trader.  China’s crude demand, which is usually strong ahead of the peak winter season, has been stoked further as some Chinese independent refiners, known as teapots, are snapping up cargoes to use up import quotas by year-end, the sources said.  "They want to receive the crude by end-December for customs records and for winter demand," one of the sources said, adding that Chinese buyers also typically pile up stocks ahead of Lunar New Year, which falls in February in 2019.  Demand for Russian and Middle Eastern crude priced off Dubai quotes has also been strong this month because of a wider price gap between the Middle East benchmark and Brent, while the upcoming U.S. sanctions on Iran have reduced Iranian oil exports to Asia, traders said.  The average spot premium for November-loading Oman crude, another popular grade among Chinese buyers, has almost tripled from the previous month to about $1.90 a barrel above Dubai quotes, according to Reuters calculations.  For ESPO, Surgutneftega on Tuesday sold a cargo for loading on Oct. 31-Nov. 5 at a premium of about $4.90 a barrel to Dubai quotes, the sources said, declining to be identified as they were not authorised to speak with media.  On Wednesday, Gazprom Neft sold a cargo at $5.40-$5.50 a barrel above Dubai quotes, while Surgutneftegaz sold a second cargo loading on Nov. 3-8 at a premium close to $6 a barrel, the sources said.  The strong premiums took some traders by surprise and they said they doubted the trend would last as Chinese buyers are likely to seek other supplies as their profit margins get squeezed by high feedstock costs.  "It certainly eats into margins badly," said a Chinese crude buyer.


Nigeria Raises Qua Iboe, Bonny OSPs for October to 6-Month Highs

Nigeria raises official selling price of Qua Iboe, Bonny Light and Forcados for October to highest in 6 months, while Bonga price jumps to 2-year high, according to price list seen by Bloomberg.

Qua Iboe OSP set at $1.03/bbl premium to Dated Brent for October, vs +96c for September

Bonny Light price set at +97c/bbl for October vs +65c/bbl for September

Bonga OSP rises to +$1.06/bbl for October, vs +70c for September; Forcados at +$1.14 vs +88c


Chinese refiners get a breather as crude oil excluded from the tariff list – Platts

The Chinese government’s temporary exclusion of US crude oil from its list of retaliatory tariffs has given a wider window to end-users in China to bring in a few more shipments until the trade war escalates further.  For state-run Sinopec, or China Petroleum & Chemical Corp, the world’s largest refiner by capacity, this offers a temporary price advantage because US crude is more competitively priced than others.  The discount of the front-month WTI swap to its Dubai crude counterpart has averaged $6.66/b so far this month, the widest monthly average discount so far this year, S&P Global Platts data showed.  Crude export differentials in the US Gulf Coast FOB market rose Tuesday, with Brent’s premium to WTI widening to $9.01/b, which makes WTI-based grades more competitive in Asia.  For Unipec, the trading arm of Sinopec and the largest crude buyer in the world, there’s an added opportunity to load more barrels in the US Gulf Coast, even though it has added options for alternative destinations as safeguards.  Earlier this month, Unipec was active in the US Gulf Coast VLCC chartering market, after a hiatus of several weeks.  Unipec booked at least two VLCCs loading crude in the US Gulf in the second half of September, which are expected to arrive in Asia in November. With no fixed date for crude oil tariffs, it will still be able to send these cargoes to Chinese refineries.  However, the uncertainty surrounding the trade war means that US-China oil flows have probably peaked and will take a considerable amount of confidence building to recover.  China received 455,000 b/d of US crude in June, which was a historic high and accounted for 5.4% of its crude imports. Volumes subsequently fell to 305,000 b/d in July, 234,000 b/d in August, and 288,000 b/d in September, data from Platts trade flow software cFlow showed.  "Oil on the tariffs list will only impact trade flows but not overall demand and as such could weaken US grades regionally and in the worst case WTI prices but the global benchmark Brent should not be affected," DNB Bank trader Erik Warren said.  "Only if economic activity goes down will Brent be impacted," he added.


The Trump administration’s strategy of leveraging US energy exports to achieve its trade objectives has ensured that US crude oil flows to China are determined by geopolitics and not economics.  In the long term, this damages the credibility of the US oil sector as a stable supplier to Chinese refiners, something that will not be easy to restore even if US-China relations were to normalize in the coming months.  Current and former executives at Sinopec’s refineries have voiced their frustration about being caught in the cross fire of the trade tensions.  They said Sinopec’s refineries initially had to make room for more US crude in their mix, which required technical reconfigurations and blending capabilities, as they were configured to process Middle Eastern sour grades and not in favor of processing US sweet crude.  They were also attracted by the deep discounts for WTI-linked crudes, and planned to ramp up US crude imports in 2018 with record bookings of 16 million barrels for loading in June.  But the trade war suddenly forced a change of course.  Unipec, which accounted most imports of US crude into China, had to cut back on spot US crude purchases because of the uncertainty. Its current purchases are limited to term contracts with options, another executive said in late August.  "Tensions between Beijing and Washington will slow down for a while, because this round of tariff war has hurt both of countries and the negotiation window is open," a source close to China’s top economic planning body, National Development and Reform Commission said, when asked about the possibility of including crude in the tariff list in the short term.  Chinese crude purchases remain high for the third and fourth quarters because refinery maintenance is concentrated in Q2 and the Lunar New Year is celebrated in Q1.  China’s crude imports also grew for the second straight month in August to a total of 9.08 million b/d. The domestic product market is very bullish at the moment and refiners are happy to raise throughput and restocking.  However, there are signs of slower growth in crude imports due to sluggish end-user demand, and once seasonal demand wanes, there will be less appetite for marginal barrels, especially from the US.


Argus starts price assessments for crude deliveries to China teapots – Reuters News

Global oil price reporting agency Argus launched on Wednesday three new price assessments for crude delivered to China’s Shandong province, where the bulk of the country’s independent refiners are located.  The price quotes are for Russian ESPO Blend, Brazilian Lula and Congolese Djeno crude delivered to ports around Qingdao city, Argus said in a statement on its website.  "Providing visibility into this opaque market will allow trade between China and Brazil, Russia and west Africa to develop from spot into term contracts, where a reliable and acceptable price reference is vital," said Argus Media Chairman and CEO Adrian Binks.  Shandong is home to 3.6 million barrels per day of refining capacity operated by independent refiners, also known as teapots, who have been given annual quotas to import crude since mid-2015

VLCC Sails to Cochin, India, After Loading at LOOP

VLCC Amjad heading for Cochin in southern India after receiving supplies from the Louisiana Offshore Oil Port Friday, according to ship tracking data compiled by Bloomberg.

  • Typically, LOOP loads U.S. crude from its marine terminal onto ships for export to non-U.S. destinations
  • Tanker set to reach final destination Oct. 24, tracking data show
  • Bharat Petroleum operates 310k b/d Kochi refinery in Kerala, India


Brent-Dubai Spread May Near $10 on IMO 2020: Oxford Institute

The Brent-Dubai crude oil spread may widen — perhaps to almost $10/bbl in some circumstances — due to IMO 2020 rules capping the sulfur content of ship fuel, though the extent of the change depends on decisions made in refining and shipping sectors, according to a report from the Oxford Institute for Energy Studies.

“Given the lighter, sweet nature of the Brent and heavier, sour nature of the Dubai baskets, the impact on the differential could be significant”

High-sulfur fuel oil may have to find a home in the power sector under certain circumstances

If HSFO is forced to compete with coal, the Brent-Dubai spread may widen to almost $10/bbl, according to Oxford Institute’s model for forward curve

Brent-Dubai spread will “eventually adjust back to historical levels and relatively quickly,” driven by economics of storage, investments in shipping and refinery upgrading, OIES says, without giving a time-frame

Canada speeds up timeline for stronger rail cars for crudeReuters News

Canada’s transport ministry said on Wednesday it would require stronger tank cars for transporting crude oil and other dangerous goods far sooner than previous deadlines, bolstering safety rules as crude by rail exports have hit record levels.  Transport Canada will now require all unjacketed CPC 1232 tank cars that carry crude oil be phased out by Nov. 1 this year, 17 months earlier than a prior deadline.  Unjacketed CPC 1232 and older DOT 111 cars that carry condensate – a volatile light hydrocarbon – will be phased out by January 1, 2019, well ahead of a previous 2025 deadline.  Phasing out the "least crash-resistant tank cars as soon as possible" will enhance the safety of communities along rail lines and help ensure the reliable transport of goods and commodities, Canada’s Minister of Transport Marc Garneau said in a statement.  The move comes one month after the head of Canada’s Transportation Safety Board told Reuters that stronger rail cars for moving flammable liquids ought to be required sooner than the initial deadlines.  Canada and the United States both introduced new safety standards for crude by rail, including the phase out of certain cars, after a runaway train carrying oil exploded in the Quebec town of Lac Megantic in 2013, killing 47 people.  DOT 111 cars, involved in that accident, were phased out for crude usage in Canada in November 2016.  The latest phase outs come as Canada’s exports of crude by rail have hit historic levels, surpassing 200,000 barrels per day (bpd) in June and expected to rise sharply through 2019.  The increase comes as oil output from Western Canada has outstripped pipeline capacity, prompting producers to sign transport deals with Canada’s two largest railways.  An industry group representing Canada’s oil producers said the government had consulted with industry on the changes and the new timelines would have a "limited impact" on Canada’s rising crude by rail exports.  "I think the transition of this fleet to safer cars, and making sure this product is transported in the safest cars possible, is everybody’s shared goal," said Brad Herald of the Canadian Association of Petroleum Producers.


U.S. Uncompleted Wells to Drop in 2019 on Transport Growth: JBC

The inventory of drilled-but-uncompleted wells (DUCs) in the U.S., which has been on the rise, will decline only in 2H 2019, after expansion of network for oil transport, Vienna-based JBC Energy says in emailed note.

"We do not see any real prospects for completions to catch up in the near term due to infrastructure constraints"

DUC count rose to more than 3.6k in Permian region in August, according to EIA; rig count of horizontal oil wells is steady: JBC

In 2H 2019, a “strong pick-up in completions” is expected, which will accompany midstream infrastructure build-out and steeper growth in U.S. crude supply


U.S. Cash Crude-Coastal crude grades weaken while Midland prices surgeReuters News

U.S. coastal cash crude differentials fell on Wednesday as the spread between U.S. crude and global benchmark futures narrowed and inland grades continued to climb, dealers said.  Light Louisiana Sweet fell to its weakest in two weeks, at a $7 per barrel premium to U.S. crude futures. Mars Sour and WTI at East Houston also weakened as the Brent/WTI spread narrowed.  U.S. crude’s discount to Brent narrowed by 81 cents to minus $8.63 per barrel. Demand for coastal grades typically declines when the spread narrows and brings U.S. crude closer in price to Brent.  But inland grades surged on Wednesday as shippers prepared for an upcoming deadline to nominate pipeline volumes, which increases oil purchases. West Texas Intermediate at Midland and West Texas Sour both climbed to fresh three-month highs, with WTI Midland trading as strong as an $8.90 per barrel discount to U.S. crude.  Crude oil bottlenecks in the Permian Basin have weighed on Midland grades for months, and the recent higher prices are only likely to reverse course after the cash roll period ends next week, traders said. WTI Midland hit a six-year low last month.  U.S. crude storage inventories fell 2.1 million barrels last week, U.S. government data showed on Wednesday, pushing U.S. crude futures higher. It was the fifth consecutive week the nation’s commercial crude stockpile drew down.

  • Light Louisiana Sweet for October delivery fell 70 cents to a midpoint of $7 and traded between $6.60 and $7.40 a barrel premium to U.S. crude futures.
  • Mars Sour fell 18 cents to a midpoint of $4.25 and traded between $3.75 and $4.75 a barrel premium to U.S. crude futures.
  • WTI Midland rose 43 cents to a midpoint of minus $9.95 and traded between $11 and $8.90 a barrel discount to U.S. crude futures.
  • West Texas Sour rose 25 cents to a midpoint of minus $9.25, trading between $10.50 and $9 a barrel discount to U.S. crude futures.
  • WTI at East Houston traded at $7.50 and $7.75 over U.S. crude futures.

U.S. Cash Products-Group Three gasoline rises to almost 3-yr highReuters News

U.S. Midwest gasoline cash differentials continued their sharp rise on Wednesday after days of consecutive gains, pushing the product to an almost three-year high in Group Three and a more than 10-month high in Chicago, market participants said.  Group Three gasoline gained 2.25 cents a gallon to trade at 15.75 cents per gallon above the gasoline futures benchmark on the New York Mercantile Exchange, traders said. The product has not traded that high since Oct. 21, 2015, when it traded at 17.00 cents per gallon above futures.  Chicago CBOB gasoline rose 3.25 cents a gallon to trade at 15.75 cents per gallon above futures, its highest since Nov. 3.  In New York Harbor, M2 conventional gasoline gained a quarter of a penny to trade at 7.75 cents per gallon above futures, market participants said.  Heating oil in the region rose a quarter of a cent to trade at 2.50 cents per gallon below the ultra-low sulfur diesel futures contract.  On the Gulf Coast, M3 conventional gasoline gained a quarter of a penny to trade at 1.25 cents per gallon above the futures benchmark, traders said.  U.S. gasoline stocks fell 1.7 million barrels, the Energy Information Administration said on Wednesday, compared with analysts’ expectations in a Reuters poll for a 104,000-barrel drop.  Distillate stockpiles, which include diesel and heating oil, rose 839,000 barrels, versus expectations for a 651,000-barrel increase, the EIA data showed.  PADD 2 Distillate inventories are at their highest on record as the region gears up for heavy refinery maintenance and a strong soybean and corn harvest, market participants said.  Refinery activity started to slow down from record highs reached a month ago with crude runs down 442,000 bpd and utilization rates off 2.2 percentage points to 95.4 percent of nationwide capacity, EIA data showed.  The RBOB futures contract on NYMEX rose 1.58 cents to settle at $2.0207 a gallon on Wednesday. NYMEX ultra-low sulfur diesel futures gained 1.09 cents to settle at $2.2466 a gallon.  Renewable fuel (D6) credits for 2018 were lower, trading at 18, 18.5 and 19 cents apiece, down from trades on Tuesday of 19, 20 and 20.5 cents, traders said.  Biomass-based diesel credits (D4) moved at 39, 40 and 41 cents each, compared to trades of 39 and 40 cents on Tuesday, traders said.


U.S. Midwest distillate stocks reach record high ahead of harvest Reuters News

Inventories for distillates, which include products such as diesel and jet fuel, are at their highest on record in the U.S. Midwest as the region gears up for heavy refinery maintenance and a strong soybean and corn harvest, market participants said.  The area has seen strong refinery runs this summer as a supportive 3:2:1 crack spread, an indicator of refinery profit, incentivized refiners to run at full tilt, said Matt Smith, director of commodities research at ClipperData. This has helped drive up stockpiles in the area.  "All the while, refineries are likely geared towards producing ultra-low sulfur diesel as much as possible, given wider margins than gasoline, as well as their diet of heavy Canadian crude," Smith added.  Heavier crudes tend to produce a higher yield of middle distillates.

Midwest distillate stocks totaled 37.6 million barrels in the week to Sept. 14, according to data released Wednesday by the U.S. Energy Information Administration.

The record inventory level "should shield regional strength in what is expected to be a heavy fall refinery maintenance season amid strong harvest-related demand," said Anthony Headrick, energy market analyst at brokerage firm CHS Hedging LLC.  The fall season is when refiners typically undergo planned maintenance, and the outages reduce supply.  Meanwhile, strong yields of corn and soybeans across the Midwest will lead to increased demand for diesel compared to previous years, said Paul Mitchell, a professor of agricultural and applied economics at the University of Wisconsin-Madison. Farmers will need more of the product to haul crops to market.  The Midwest harvest season is generally in full throttle in October.  The high distillate supply has pushed cash differentials in the region lower, traders said.  Cash prices for ULSD in Group Three, a region that encompasses several Midwestern states, are at the lowest seasonally since 2015.  Chicago ULSD prices on Thursday hit their lowest for this time of year since 2014, except for a two-day period in September 2017.


Asia Distillates-Gasoil cash premiums continue uptrend, touch new peak – Reuters News

Asia’s cash premiums for 10ppm gasoil climbed for the third consecutive session on Thursday to a new peak for this year, while cash discounts for jet fuel were at their narrowest in over a month, riding on firmer demand for middle distillates in the region.  Cash differentials for gasoil with 10 ppm sulphur content GO10-SIN-DIF rose to a premium of 82 cents a barrel to Singapore quotes, the strongest levels touched since S&P Global Platts switched the benchmarks in Asian gasoil grades last January to maximum sulphur content of 10 ppm sulphur, from 500 ppm sulphur previously.  The benchmark gasoil premiums were at 77 cents a barrel on Wednesday.  The refining margins, or cracks for 10 ppm gasoil were steady around $16 a barrel over Dubai crude during Asian trading hours, compared with $15.97 a barrel on Wednesday.  There is quite a steady demand for gasoil in Asia at present, but the price spread between east and west was making it unworkable to ship cargoes from east to west, traders said.  The exchange of futures for swaps (EFS) LGOAEFSMc1 were about minus $6.70 a tonne on Thursday from minus $7.52 a tonne from the previous session, Reuters data showed. Arbitrage is usually profitable when the EFS trades at about minus $15 a tonne and below.  Meanwhile, cash discounts for jet fuel JET-SIN-DIF narrowed to 6 cents a barrel to Singapore quotes on Thursday, from a discount of 8 cents a barrel on Wednesday.  Jet fuel refining margins edged higher to $15.07 a barrel over Dubai crude on Thursday, from $15.02 a barrel a day earlier. Jet cracks are seasonally at their strongest for this time of the year in the last five years.  The current jet margins are pretty strong and might ease a little over the next couple of weeks, but the market would tighten once the winter demand for kerosene starts picking up from the next quarter, market watchers said.  Kerosene and jet fuel are closely related and belong to the same grade of oil products, with jet fuel margins determining the profitability of both.


China diesel demand picks up at fastest pace in at least five years – Reuters News

China’s diesel demand will grow at its fastest in at least five years as a pick-up in diesel-intensive sectors in the world’s second-biggest economy coincides with lower output from domestic refineries, several sources and analysts said.  Estimates of the hike in diesel use from three analysts and two oil industry sources range from 0.3 to 1.7 percent for 2018 compared with last year’s stagnant growth, pointing towards a recovery for the industrial and transport fuel.  Diesel accounts for about 30 percent of China’s appetite for petroleum products and is typically used to fuel trucks, as well as mining and construction equipment. The slight pick-up in Chinese demand helped to boost Asian diesel margins to their highest in more than three years earlier this month.  "Our outlook for Chinese diesel demand remains positive, with consumption set to remain supported over the coming years with positive … trends in key diesel-intensive sectors, such as construction, manufacturing, freight and mining," said Richard Taylor, oil and gas analyst at Fitch Solutions.  This year’s diesel growth will be the fastest since 2011, said Energy Aspects analyst Nevyn Nah.  The demand increase is likely temporary, however, said the research unit of China National Petroleum Corp (CNPC) CNPET.UL, with economic growth moderating and tighter environmental scrutiny from Beijing.  "China’s diesel demand will stay around peak levels until 2020. After that, consumption will slowly go down," said Wang Lining, researcher from CNPC Research Institute of Economic and Technology.  "We noticed the recent pickup in infrastructure investment which led to a temporary boom in diesel consumption," Wang said.  Besides increased demand from industry and mining, the lifting of an annual fishing ban of up to four months in certain areas this year has created pent-up demand for diesel, the industry sources said, speaking on condition of anonymity as they were not authorised to speak to media.



Higher industrial output ahead of the Golden Week holiday in early October also boosted demand, the sources said.  Industrial output in China rose 6.1 percent in August from a year earlier, the National Bureau of Statistics (NBS) said last week, a tick higher than in July.  Medium and heavy truck sales were up 3.5 percent in the first eight months from a year ago as car producers sold 2.6 million trucks in the period, data from China Association of Automobile Manufacturing also showed.  Also, tightening tax rules implemented in March have led to a cut in imports of blending stocks such as light cycle oil (LCO), stoking demand for diesel in the domestic market instead, two of the sources said.  Premiums for LCO exported from South Korea this year have at least halved to $5 to $6 a tonne since last year, indicating a drop in demand from its main customers in China, one of the sources said.  Led by a spike in benchmark crude prices LCOc1, wholesale diesel prices in China have jumped 22 percent from the start of the year to 7,838 yuan ($1,140.40) per tonne, the highest in four years, according to consultancy JLC.  In comparison, the price of 10ppm diesel loading in Singapore is just over $700, about 5,000 yuan, a tonne, Reuters data showed.


Singapore Weekly Fuel Stockpiles for Sept. 19 Rise 1.7% W/w

Total stockpiles 37.3m bbl, +1.7% w/w

Light Distillates 12.4m bbl, +9.4% w/w

Middle Distillates 9.5m bbl, +2.1% w/w

Residues 15.3m bbl, -4.1% w/w


Singapore Light Distillate Stocks


Singapore Middle Distillate Stocks


Jonathan Wagner

Ion Energy Group

88 Pine Street, Suite 15

New York, NY  10005

Direct: 212-709-2261

Cell: 914-843-6986


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