World oil indexes have continued firm downward evolution this week. Still, the fundamentals have been trending in a bearish direction. Even though OPEC+ has sent signals that a production cut is on the table, other blocks of news have been negative. Libya expects to be exempted from the production cut, and its output continues to rise steadily. Venezuela’s output fell by less than expected in October. Iraq and Kurdistan just agreed to allow for some oil – up to 100,000 bpd initially – to resume flowing through a Kurdish pipeline.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs), continued firm downward trend in the period of Nov.22 – Nov.29 as well:
380 HSFO – down from 414.86 to 385.57 USD/MT (-29.29)
180 HSFO – down from 468.71 to 434.71 USD/MT (-34.00)
MGO – down from 637.79 to 607.36 USD/MT (-30.43)
A survey of investment banks finds an average forecasted Brent price of $75.50 per barrel in 2019, down from $78.51 per barrel in October. The price is significantly higher than prevailing spot prices, and the price also is notable because of worries over the global economy. The in-vestment banks expect OPEC+ to cut production to help erase the supply glut.
Goldman Sachs in turn believes that the price of oil and other commodities are set for a rebound next year and the first catalyst could come as early as this weekend at a G-20 summit in Argentina, where leaders could discuss the U.S.-China trade standoff and an OPEC idea to begin cut-ting production again. If the world’s top politicians reach some understandings about trade and an OPEC cut, they could offer the oil market some clarity on the current geopolitical uncertain-ties.
Ministers from OPEC meet on Dec. 6 in Vienna to decide on production policy for the next six months. OPEC officials have been making increasingly frequent public statements that the cartel and its partners would start withholding crude in 2019 to tighten supply and prop up prices.
Morgan Stanley sees a 33-percent chance of the cartel failing or refusing to agree a production cut, in which case prices will slump more, pressured by bleak economic outlooks and concerns about a crude oil oversupply. The argument against a production cut is market share. Some OPEC members have already spoken against a cut, notably Libya, which said it expected to be granted an exemption from any cuts. Besides the OPEC meeting, oil market observers would be watching the G20 meeting, where Russia may or may not give a clear indication whether it will join any cut agreements.
Meantime, Saudi Arabia raised oil production to an all-time high in November. Saudi Arabia agreed to raise supply steeply in June, in response to calls from consumers, including the United States and India, to help cool oil prices and address a supply shortage after Washington imposed sanctions on Iran. As a result, Saudi crude oil production hit 11.1-11.3 million barrels per day (bpd) in November, although it will not be clear what the exact average November output is until the month is over. Anyway, those levels are up around 0.5 million bpd from October and more than 1 million bpd higher than in early 2018.
Mass media explores the secret negotiations between the U.S. and Saudi Arabia over a nuclear power deal. The agreement would allow for the construction of nuclear reactors in Saudi Arabia, but Riyadh wants to control the fuel cycle, which raises questions about motivations for a weapons program. The recent murder of Saudi journalist Jamal Khashoggi, and the shifting explanations for what happened, also seriously undercuts the credibility of the Saudi regime.
The EU has been trying to create a special purpose vehicle (SPV) that would allow the bloc to continue buying Iranian oil and to keep trading in other products with Iran now that the U.S. sanctions on Tehran have returned. The idea behind the SPV is to have it act as a clearing house into which buyers of Iranian oil would pay, allowing the EU to trade oil with Iran without having to directly pay the Islamic Republic. However, the SPV is not yet operational and the under-taking is rather complicated and politically sensitive. The bloc is also struggling with the set-up, because no EU member is willing to host it for fear of angering the United States.
Trading on 11 contracts will begin on the CME electronic platform from 10 December, and will settle against S&P Global Platts physical marine fuel 0.50% assessments. The first listed con-tract is for April 2019. Monthly contracts will be listed for 2019 and the subsequent three calendar years. Among the new futures contracts are: USGC Marine Fuel 0.5%; European FOB Rotterdam Marine Fuel 0.5% barges; Singapore FOB Marine Fuel 0.5%, Singapore FOB Marine Fuel 0.5% vs European FOB Rotterdam Marine Fuel 0.5% Barges and European FOB Rotter-dam Marine Fuel 0.5% vs European 3.5% FOB Barges. The new assessments, termed marine fuel 0.50%, will initially be published for cargoes or barges loading from the main bunkering hubs of Singapore, Fujairah, Rotterdam, Houston and New York Harbor.
China is set to continue importing robust volumes of Iranian crude at least through the end of this year due to the U.S. waivers. China’s oil imports from Iran increased by 4.1 percent annually to average 631,556 bpd between January and September. It was 599,000 bpd in October and could reach 646,000 bpd in November. October imports were driven by two key factors: high intake from China’s independent refiners and high volume of Iranian imports just before the U.S. sanctions snapped and before there was any clarity over the waivers.
Meantime, Chinese demand for oil from the United States is decreasing despite the fact that U.S. crude oil is not on China’s tariff list. The U.S. didn’t export any crude oil to China in August, compared to 384,000 bpd in July and a record-high 510,000 bpd in June. After August, the trend for zero Chinese imports from the U.S. continued in September. Last year, crude oil sales to China accounted for 23 percent of all U.S. crude oil exports.
Any expectation that fuel prices will recover could be undermined by at least two factors so far. First, the global economy could enter a downturn and demand collapses. Or, OPEC+ decides not to cut at all at the upcoming meeting, which leads to a significant supply glut heading into 2019. The more oil and fuel prices fall now, the more pressure OPEC+ will feel as its December 6 meeting approaches. We expect bunker prices will demonstrate high volatility and continue sliding down next week.
All prices stated in USD / Mton
All time high Brent = $147.50 (July 11, 2008)
All time high Light crude (WTI) = $147.27 (July 11, 2008)
Source: Marine Bunker ExchangePrevious Next
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