This week’s key data shows that fears of a Brexit, that will determine whether the Britain leaves the European Union, continue to weigh on fuel indexes. The prospect of a Brexit also strengthened the dollar as major currency traders moved out of the sterling and euro into the safe haven of the U.S. dollar, depressing prices. But since the tragic murder of a British MP, the markets are betting that the “Remain” camp could prevail. In any case the referendum is being watched by governments and investors around the world amid worries it would spark a wave of turmoil across global markets.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) demonstrated slight upward evolution in the period of June 16 – 23:
380 HSFO – up from 221.79 to 233,07 USD/MT (+11,28)
180 HSFO – up from 264.57 to 274.21 USD/MT (+9,64)
MGO – up from 484.00 to 492.86 USD/MT (+8,86)
Drawdowns in U.S. crude inventories over the past month have not provided much support to fuel while market focused more on a possible rise in production. Drilling activity rose for a third week through Friday, with companies adding nine rigs to boost the total to 337. However, long-term supply concerns with drill rigs coming back to market will probably cap any major rallies toward the $55 to $60 level.
U.S. nationwide crude inventories shrank by 917,000 barrels to 530.6 million barrels in the week ended June 17 (forecast predicted decline of 1.5 million barrels, while the American Petroleum Institute had reported a draw of 5.2 million barrels). Meantime, U.S. crude imports rose to the highest level since December 2012 – by 817,000 barrels a day to 8.44 million barrels a day last week showing crude oil coming back to the United States potentially filling up the market again.
Federal Reserve Chair Janet Yellen offered a subtle change to her outlook from less than a week ago, saying she and her colleagues were on watch for whether, rather than when, the U.S. economy would show clear signs of improvement.
A one-month ceasefire between the government and Nigerian militants whose attacks have curtailed the country’s crude oil exports also added a bearish signal to a market. However, the deal was not immediately confirmed. Nigerian militants say they don’t remember any cease-fire pact. Nigeria’s presidency also said they were not aware of a cease-fire with militants targeting oil facilities in the Niger Delta. In fact there is still risk of further attacks on oil facilities in the country, which may render extra support to the fuel indexes.
Saudi Arabia’s crude oil exports dropped in April despite high production, suggesting its battle for market share against U.S. shale drillers may be running its course.
As per Russia, it makes no sense now for Russia and Saudi Arabia to work together to influence the market. Russia is seeking buyers for 19.5 percent of Rosneft and would prefer a joint deal with the two nations leading the growth in global energy demand: China and India. Government expects to raise at least 700 billion rubles ($11 billion) from the sale, which would set a privatization record for the country.
Iran continues to increase oil production and export capacity. Production has climbed by 25 percent from roughly 2.8 million barrels per day to 3.5 million barrels per day. Iranian officials have targeted 4 million barrels per day of output before the year is out. Despite of that, further production increases will be much more difficult to achieve and exceeding pre-sanctions levels would require investment and technology. To do so, Iran plans to attract $100 billion in investment from international oil companies but it depends on the stability of its new oil contract model as well as assuring oil companies it will be safe to do business in Iran.
Venezuela predicts prices around $50 a barrel are enough for state oil producer PDVSA to avoid a default on its debt. Venezuela depends on oil for 95 percent of its export revenue and remains the country most at risk of failing to pay its debt in the world. At present Venezuela produces about 2.6 million barrels of crude a day.
All in all Brexit is a key event on global fuel market this week. We are guardedly optimistic about a “Remain” vote in Britain’s European Union referendum while no true value in bunker prices to be seen until beginning 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 Exchange