You are here
Singapore oil product prices up 3-5% on 'fear premium'
[SINGAPORE] Following a spike in global crude prices, Singapore oil product prices have risen by 3-5 per cent on the back of a "fear premium" stemming from the latest flare-up in Iraq.
Some oil traders here told The Business Times that they are also staying "long" on the market at this time, lest they get caught out.
They were reacting to Brent crude shooting to a nine-month high of more than US$114 a barrel this week as Sunni militants opposed to Baghdad's Shiite government fought to take Iraq's largest refinery at Baiji - albeit one catering to just domestic Iraqi needs, with most of the oilfields in the country's south still intact.
Brent has spiked by more than US$4 since the escalation of the jihadist offensive last week, and is now up almost 9 per cent from April's US$105 level.
US benchmark West Texas Intermediate (WTI) has risen by US$2 in the last week to more than US$106.
Despite the latest price spikes, there is no palpable tension in the oil market here.
"Why is the market trying to spook itself?" questioned a trading boss.
"The world is more than sufficiently supplied, with the Saudis and Iran able to make up for any potential loss in Iraqi oil supplies.
"Besides, with Ramadan approaching, the US is unlikely to want to ratchet up tensions by getting involved," he reckoned.
Like what has happened for most of Q2, industry players said that trading activity here has remained quiet so far, especially with the economic slowdown in China. Most traders are not making money in the difficult market, one source added.
Another trading executive said that "while some Iraqi cargoes do come here, and comprises high-quality stuff, Iraq only accounts for a fraction of global production".
This is borne out by the just-released BP Statistical Review of World Energy 2014, which showed that Iraq - despite being the second-largest Gulf producer after Saudi Arabia - accounted for just 3.7 per cent of global oil production last year. In fact, rising oil production in the US (which accounted for 10.8 per cent of global production in 2013) and in Russia (12.9 per cent) is quickly closing in on Saudi levels (13.1 per cent last year).
"Thus despite oil product prices here rising across the barrel, the Singapore market in fact remains very quiet," another oil trader told BT.
Most product prices here remain in backwardation, he said, referring to a market situation where the price of a forward or futures contract is trading below the spot price.
"This is because global oil supply and demand remains balanced, with the current spike in prices due largely to traders speculating on the war," said the trading executive. "Otherwise Brent would have shot to US$150," he remarked, referring to the last all-time record price.
Still, if nothing else, the Iraqi flare-up has helped to ignite a spark in the otherwise "flat" market here. "Most players are taking a watch-and-see approach, to see if there are trading opportunities from the Iraqi situation," one player said.