05-09-2016

Bunker prices likely to stay mixed next week, expert says

Mabux

World fuel indexes did not have any firm trend during the week: indications demonstrated fluctuations and changed irregular. Some support to the indexes was rendered by the signs that the global surplus diminishes, and by speculation that OPEC talks in the end of September could result in a crude output freeze. A deal to freeze output was first proposed in February but a meeting in April ended with no final accord.

Top oil executives do not see an end to the volatility in the oil markets for the foreseeable future. The ongoing process of adjustment to oil supply and demand may extend into 2017 while the inventory levels are still quite high.

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) demonstrated a number of fluctuations but finally have turned into slight downward evolution in the period of Aug.25 – Sep.01:

380 HSFO – down from 236.50 to 233.71 USD/MT (-2,79)
180 HSFO – down from 279.00 to 277.07 USD/MT (-1,93)
MGO – down from 476.36 to 468.14 USD/MT (-8,22)

U.S. crude inventories climbed 2.28 million barrels to 525.9 million in the week ended Aug. 26, the highest in two months. Crude stockpiles are still at their highest seasonal level in more than 20 years. Crude imports increased 275,000 barrels a day to 8.92 million last week, the highest since September 2012. Production slipped 60,000 barrels a day to 8.49 million.

Oil and gas operators in the U.S. Gulf of Mexico have shut output equal to 168,334 barrels per day (bpd) of oil and 190 million cubic feet per day of natural gas as a precaution against a tropical storm. However, concerns over refinery production outages caused by storm threats have done little to support prices as a product glut in the United States persists. The U.S. drill rig count remained un-changed at 406 through Aug. 26 after eight weeks of gains.

The Organization of Petroleum Exporting Countries will hold informal talks during an industry conference in Algiers in September, fanning speculation the group could revive an initiative with non-members such as Russia to limit output. A previous attempt collapsed in April amid political tensions between Saudi Arabia and Iran. The situation before talks is still unclear.

Saudi Arabian officials consider that while a freeze would be positive for market sentiment, no intervention of significance is required as global markets are rebalancing by themselves. Meantime, Saudi Arabia is not going to boost output to capacity and flood the market. At present Saudi Arabia is producing near record levels (10.43 million barrels a day in July) as it tries to preserve market share in the face of a worldwide glut, and is able to pump as much as 12.5 million barrels a day of oil.

Iran in turn said late last week that it would only cooperate in upcoming producer talks in September if other exporters recognized Tehran’s right to regain market share lost during international sanctions. However, both IEA and OPEC data in recent months indicate that Iran’s oil production appears to have stalled: after loadings reached 2.6 million barrels per day in May, they are below this mark for the past three months. Iranian floating storage at Asaloyeh drop off in recent months too. Even though Iran has exported crude to ten different European countries since the lifting of sanctions at the beginning of the year, it is still struggling to navigate payments through certain banks given ongoing U.S. sanctions. And an ongoing lack of foreign investment is also seen hindering production. Falling short of its production target of 4 million barrels per day casts further uncertainty on Iran’s involvement in a production freeze.

Iraq – the second-biggest member of OPEC, pumping 4.36 million barrels a day in July – still hadn’t raised production sufficiently and has shown more willingness to co-operate with OPEC as the plunge in oil prices and the fight against Islamic State battered its finances. The country has secured a $5.3 billion loan from the International Monetary Fund to stabilize its reeling economy.

As per other OPEC members: in Nigeria militant group has said it has ended attacks on the nation’s oil and gas industry that have reduced country’s output by 700,000 barrels a day to 1.56 million bpd. Prospect of a recovery in oil production from Libia was tempered after the head of the country’s National Oil Corp. said budgetary delays from the new government were undermining oil production.

The slowing in Chinese oil demand appears set to persist. Market opinions divided over level of China strategic reserves. Record purchases this year have helped fuel prices to recover. The difficulty is that China’s government won’t report how much it’s holding. Some sources say the country will probably keep buying and fill up commercial tanks if it has to, while another are sure that the purchases may soon stop. The difference in opinion is equivalent to about 1.1 million barrels a day. According to the last statement in December, the country had about 191 million barrels of crude in its Strategic Petroleum Reserve (SPR). Another evaluation says the country built up a total of about 400 million barrels by mid-2016 out of a targeted 511 million barrels. That means that based on the current rate of stockpiling, the storage would be filled up by August, leading to a potential drop in imports in September. However, China can shift oil between commercial and strategic storage which may give the government a chance to increase purchases even if it runs out of its own space.

As a resume, existing disagreements within the Organization of the Petroleum Exporting Countries, and especially its key members Saudi Arabia and Iran, are dimming prospects of collective action as any decision to stabilize the market will require the full participation of all OPEC members and major suppliers from outside the group. We also expect market volatility will persist while demand and supply rebalance. Bunker prices may continue irregular changes next week.

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* 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)

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Source: Marine Bunker Exchange

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