08-08-2016

MABUX: The expectations of a balanced fuel market have so far not proved

Mabux

World fuel indexes continued firm downward evolution during the week. The global glut of oil and fuel still weighs on the market. Slower economic growth and high inventories of crude and refined oil products have also pushed fuel indexes down.

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) declined in the period of July 28 – Aug. 03:

380 HSFO – down from 215.93 to 209,36 USD/MT (-6,57)
180 HSFO – down from 266.21 to 260.64 USD/MT (-5,57)
MGO – down from 449.93 to 438.00 USD/MT (-11,93)

U.S. oil producers are continuing to return to the shale patch. Rigs targeting crude capped their first five-week gain since August, rising by 3 to 374 in the period ended July 29. American producers had idled more than 1,000 oil rigs since the start of last year. It is expected that shale output to bottom early next year before returning to the record level set in 2015 of about 4.5 million barrels a day within two years. Industry data also shows that the global oil rig count for new production edged up in June for the first time this year, rising by two to 1,407, largely thanks to an uptick in U.S. drilling.

The U.S. crude inventories rose 1.41 million barrels through July 29, keeping supplies more than 100 million barrels above the five-year average. Meanwhile, gasoline supplies fell 3.26 million barrels: gasoline production decreased while refinery utilization increased, which probably means they are already trying to maximize their distillate output.

Russian oil output rose 1.8 percent in July, extending a run of year-on-year gains to 24 months. Production climbed to 10.85 million barrels a day. That was little changed from June and compares with a post-soviet record of 10.91 million barrels a day in January. Exports rose 4.7 percent to 5.28 million barrels a day in July from a year earlier. The forecast predicts Russian oil production will probably increase to 11.65 million barrels a day by 2018.

OPEC’s crude oil output was disrupted in July by militant attacks in Nigeria and political disputes in Libya: the supportive factor for the fuel indexes. Output from the 13 established members of the Organization of Petroleum Exporting Countries, excluding new entrant Gabon, fell by 80,000 barrels a day last month.

Nigeria led the decline with a 70,000-barrel-a-day monthly drop to 1.52 million. The country has suffered steep crude output losses this year as militant attacks targeted oil infrastructure. While output recovered in June, it fell again in July following the disruption of supplies to the Qua Iboe terminal, which shipped an average of 342,000 barrels a day last year.

Libyan oil officials have made multiple pledges over the past few years that the nation’s exports would revive. A resumption of the North African country’s production to 2011 levels would add about 1.3 million barrels a day to world supplies. At present two ports (Ras Lanuf or Es Sider) have reopened, but the fields that feed them have yet to restart. Market still remains sceptical that a regular flow of crude can be achieved in the near future because of damage to infrastructure at the terminals and also because of blockades by tribes and local factions the ports and oil fields. Exports from all Libyan ports dropped to about 226,000 barrels a day in July after reaching a six-month high in June.

Oil exports from Iraq’s southern ports rose to 3.2 million barrels per day (bpd) on average in July, up from 3.175 million bpd in June. Meantime, Kurdish Peshmerga forces in northern Iraq regained control of an oil field near Kirkuk after Islamic State militants overran the facility, setting fire to two storage tanks and causing crude production of 175,000 barrels a day to be halted.

Iranian production gains continued, rising by 20,000 barrels a day to 3.55 million in July. Meantime, Iran approved an outline for a new oil contract model, taking the OPEC member a step closer to welcoming foreign investment in its energy industry. Priority will be given to boosting production at jointly owned oil and gas fields. The country hopes foreign companies will invest as much as $50 billion a year. Iran seeks to reach an eight-year high for daily output of 4 million barrels by the end of 2016, with foreign investment helping it regain the position as OPEC’s second-largest producer.

The recent development of the situation shows that the expectations of a balanced oil market in the second half of 2016 have so far not proved to be correct. We expect bunker prices may continue slight downward trend next week.

972_Table1

* MGO LS
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)

329_Table 2
Source: Marine Bunker Exchange

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