17-10-2016

Bunker prices to continue irregular changes next week

Mabux

World fuel indexes have demonstrated irregular changes with slight upward evolution during the week. International Energy Agency (IEA) said that the fuel market will remain in a state of oversupply through the first half of 2017. The agency lowered its oil demand forecast once again, dropping demand growth for 2016 to 1.2 million barrels per day (in September it expected growth of 1.3 mb/d). Two consecutive months of downgrades to its demand figures come as the agency sees vanishing OECD growth and a marked deceleration in China.

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) has not had any firm trend and showed only slight rising in the period of Oct.06 – Oct.13:

380 HSFO – up from 258.64 to 267.50 USD/MT (+8,86)
180 HSFO – up from 300.64 to 308.14 USD/MT (+7,50)
MGO – up from 500.07 to 502.79 USD/MT (+2,72)

The Organization of the Petroleum Exporting Countries (OPEC) aims to cut production to a range of 32.50 million barrels per day (bpd) to 33.0 million bpd. Saudi Arabia said it was optimistic a global production deal to limit supplies could be reached at an OPEC meeting scheduled for the end of next month, and the oil-price could recover to $60 a barrel by the end of 2016. As per Energy Minister Al-Falih, the kingdom is prepared to deal with any oil price and there’s absolutely no reason to panic over the country’s balance sheet (the nation’s budget deficit reached 16 percent of gross domestic product last year).

Meantime, IEA warned that ongoing production gains from some OPEC members could more than offset expected output cuts. In September, OPEC’s collective output rose to 33.64 mb/d, an all-time record. Iraq added 90,000 barrels per day; Libya added about 70,000 bpd; Nigeria brought back 20,000 bpd; Iran added 30,000 bpd. Much more oil could be forthcoming from some of those nations, particularly Nigeria and Libya, if damaged infrastructure can be repaired and brought back online.

Besides, OPEC must resolve the scale of the internal differences before securing a deal to cut supply. Venezuela and Iraq are disputing the data, which could determine the production target for each country when caps on members’ output are decided next month. Their own figures for September output were 565,000 barrels a day higher than estimates compiled by the OPEC from so-called secondary sources. The total gap between the estimates of secondary sources and countries’ direct communications to OPEC was 866,000 barrels a day last month.

Russia is ready to join OPEC in limiting oil production with either a freeze or a cut as it is (as per President Putin) probably the only proper decision to preserve stability in the global energy market. The news from Russia have supported the fuel indexes. Market expects Russian oil companies will unify behind their government if talks with the OPEC result in an agreement to limit output, although Russia’s largest producer Rosneft has questioned the need to reduce output recently. So far this month, Russia has pumped crude and a light oil called condensate at a rate of 11.2 million barrels a day. If that continued for the whole month, it would set a post-Soviet record, beating September’s 11.1 million barrels a day.

U.S. producers have taken advantage of the increase of oil prices to boost drilling. A three new oil rigs were brought online, bringing the total count to 428. It marks six straight weeks of oil rig gains, and the fifteen-week streak of no oil rig losses is the one since 2011. Since June 24, 2016, the rig count has risen by 98 sites. From its 2016 low on May 27, the count is up by 112.

Fuel indexes may need to rally further before China’s producers may compensate a drop in output to the lowest in more than six years. Forecast predicted production in China will stabilize with prices around $50 a barrel and may not rebound until they are above $60. The country’s production during August dropped 9.9 percent from a year ago to 16.45 million tons (about 3.89 million barrels a day, the lowest since December 2009) as state-run companies shut fields too expensive to operate amid the worst price crash in a generation.

Growing Asian demand for West African crude is fueling a worldwide surge in shipping rates for the largest oil tankers. Chartering rates for Suezmaxes and very large crude carriers (VLCCs) have recovered rapidly. The reason is that Asian refiners return to the market after turnaround period and export from West Africa resumed after pipeline disruptions in Nigeria. Chinese loadings of West African crude are set to average 1.1 million barrels per day in October, while Nigerian loadings are now scheduled to reach some 1.9 million barrels per day next month. With higher rates, fewer imports could come into the U.S., reducing overall inventories. As a result it could set up additional supporting factor for bunker prices in coming weeks.

We expect bunker prices will continue irregular changes with some chances to rise slightly amid speculations on possible output cut agreement. The volatility on the market remains.

355_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)

751_Table2
Source: Marine Bunker Exchange

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