New COVID 19 Variant Plummets Lightends’ Crude Oil Prices

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  • Naphtha sentiment is mixed Naphtha CIF NWE closed at $662/mt on Nov. 26, down 10.1% on the day and $75/mt.
  • Despite the more bearish sentiment observed in naphtha outright prices, and particularly for blendstock grades in light of travel uncertainty and gasoline’s near-term demand, the complex remains supported by petrochemicals producers’ demand.
  • At the same time, limited supply from the US Gulf Coast coupled with an open arbitrage to Asia also helped the resistance of spreads on the day.
  • This was the largest daily change in absolute terms since May 15, 2020, and the largest daily price drop since April 23, 2020.

Concerns over a novel COVID-19 strain discovered in South Africa prompted the WHO to convene an emergency meeting on Nov. 26 as reported by S&P.

Bearish sentiment for gasoline

Gasoline Eurobob FOB ARA closed at $651.50/mt, down 12% on the day and $88.50/mt, This was the largest daily change in absolute terms since May 15, 2020, and the largest daily price drop since April 30, 2020.

A bearish sentiment dominated the Northwest European gasoline market as European lockdown restrictions and the anticipation of further restrictions have limited gasoline demand.

Additionally, the end of maintenance at European refineries such as Sweden’s 125,000 b/d Gothenburg refinery has left the market teetering on the brink of oversupply.

The recently steep backwardation softened in the last week, with the market structure flattening out to an extent as weaker market fundamentals persisted, but gasoline inventories in Europe are yet to be replenished as the backwardation structure remained.

The arbitrage between Northwest Europe and the US Atlantic Coast was largely closed, so exports to the USAC offer little support to the Northwest European market.

The front-month gasoline swap contract against naphtha equivalent dipped into the negative territory on the day, closing at a 50 cents/mt discount, down from $5.25/mt on the day and the lowest since Feb. 1.

Naphtha sentiment is mixed

On November 26, naphtha CIF NWE closed at $662/mt, down 10.1% on the day and $75/mt. This was the largest daily price decline since April 23, 2020, and the highest daily change in absolute terms since May 15, 2020.

Despite the greater pessimistic mood seen in naphtha outright prices, particularly for blendstock grades in light of travel uncertainties and gasoline’s near-term demand, petrochemicals makers’ need continues to underpin the complex. Simultaneously, restricted supply from the US Gulf Coast, along with an open arbitrage to Asia, aided spread resistance on the day.

“What a carnage on the flat rate today! Cracks and outbreaks, on the other hand, seem to be held in “according to a source

The December crack spread for naphtha CIF NWE finished at $1.08/b, down from $1.11/b the day before.

LPG retains support

The fundamentals of the LPG market in Northwest Europe were broadly balanced, with a mix of positive and bearish influences. Inland, demand for propane was significant due to lowering winter temperatures and an increase in heating demand. Despite the weakening attitude in the gasoline market, there was little blending demand for butane. Butane supply was tighter on restricted travels from the United States to Northwest Europe. Because of the continuous premiums to naphtha, both butane and propane have been phased out as petrochemical feedstocks. On Nov. 26, CIF NWE big propane cargoes were evaluated at a $66/mt premium over CIF NWE naphtha cargoes.

Propane CIF NWE ended the day at $728/mt, down 6.82% from the previous day’s close of $53.25/mt. This was the largest daily price reduction since April 23, 2020, and the highest daily change in absolute terms since June 4, 2020.

Butane CIF NWE closed at $712/mt, down 10.1% on the day and $80/mt. This was the largest daily change in absolute terms since May 15, 2020, and the largest daily price drop since April 23, 2020.

Crude collapse pressures outright prices

According to the BBC, the new version has been discovered in South Africa, Botswana, Hong Kong, and Belgium, with the latter prompting European governments to tighten travel restrictions and add many countries to red lists, including the United Kingdom. The WHO meeting is still going on, and scientists say it will take weeks to figure out what the new variety means.

Oil prices have fallen due to widespread uncertainty. At 1743 GMT, the ICE January Brent crude futures contract was down $8.50/b from its previous closing of $82.22/b, while the NYMEX January WTI futures contract was down $8.94 at $69.16/b.

During the late afternoon session, the CBOE crude oil volatility index OVX was seen trading at 66.05% implied forward volatility, the highest level since Oct. 26, 2020.

Market participants would likely closely track the upcoming OPEC+ meeting on Dec. 2, particularly related to decisions regarding rising supply that might put more pressure on products’ outright prices

New COVID-19 variant

Crude oil futures plunged in mid-morning trade in Asia on Nov. 26 as investors were spooked by reports of a new COVID-19 variant from South Africa that appeared to evade immune responses, sparking a sharp sell-off in the broader financial markets.

At 10:05 am Singapore time (0205 GMT), the ICE January Brent futures contract was down $1.13/b (1.37%) from the previous close at $81.09/b, while the NYMEX January light sweet crude contract was $1.52/b (1.94%) lower at $76.87/b.

The latest development will further cloud hopes of a swift economic recovery as vaccinations around the world pick up the pace.

Media reports indicated that OPEC’s advisory body, the Economic Commission Board, expects the SPR releases to swell a coming surplus set to kick in in oil markets from the first quarter next year.

The global uncertainty was reflected in spiking volatility across financial markets, collapsing crude oil prices, and associated oil products’ outright prices, including light distillates.

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Source: S&P

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