World fuel indexes continued to demonstrate slight upward evolution during the week. The market is still fundamentally supported by expectations that members of the Organization of the Petroleum Exporting Countries (OPEC) would take action to support prices at their meeting in Vienna on November 30, while some members signaling they plan further increases.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) has demonstrated insignificant growth in the period of Oct.13 – Oct.20:
The fuel market is in a waiting mood to see the effect of the OPEC agreement: how it’s going to work and which countries are going to cut production. In fact, OPEC partly achieved its main task in Istanbul, as Russia’s two largest oil producers said they would comply with any government instructions to curb oil output, following President Vladimir Putin’s backing on Oct.10 for a supply deal. The initiative has been transferred to an OPEC Committee now, which will meet later this month.
As per Saudi Arabia, many nations are willing to join OPEC in cutting production to secure a continued improvement in oil prices. No names of the countries were given, but negotiations will continue until the meeting of the OPEC in Vienna. There is still the question of whether any cut by OPEC will be made irrelevant by a potential increase in non-OPEC production. Russia said, freezing global crude oil production for six months with an option for an extension would be the most appropriate and efficient way to rebalance the market. Moscow is continuing its consultations with companies operating in Russia, and hopes that everyone will take part in an agreement on freezing output.
In addition, a Russia-Saudi Arabia working group will be meeting in Riyadh in the second half of October to discuss energy cooperation. Meanwhile, OPEC’s crude oil output reached a new record of 33.64 million barrels per day in September. And Russia saw its oil output last month rise to a new high as well, of 11.11 million barrels per day, up 4 percent on August.
So far, only Russia has said it’s considering an output freeze or a reduction, while other non-OPEC producers that cooperated with past supply curbs, including Mexico and Norway, said they won’t cut.
Besides, while OPEC has pledged to trim production, disputes have emerged over individual targets. Venezuela and Iraq’s own figures on how much crude they produced in September were significantly higher than estimates compiled by OPEC from so-called secondary sources. The two nations are disputing the data, which could determine the production target for each country when caps on members’ output are decided in November.
Output from OPEC member Libya has expanded to 560,000 barrels a day. This compares with a reported production rate of 540,000 a barrels a day last week. And Nigeria expects its crude output to rise 22 percent to 2.2 million bpd by the end of December.
Iran (OPEC’s third-biggest member), plans to raise production from 3.89 million barrels a day currently to 4 million barrels a day this year, also potentially complicating the producer group’s plan to cut supply in an effort to prop up prices. The country pumped 4.085 million barrels a day before sanctions were imposed on its economy. Iran is also targeting an average daily output of 4.28 million barrels of crude and 1 million barrels of condensate within four years. The country currently exports more than 2.2 million barrels a day and aims to raise exports to 2.5 million barrels a day by March.
Some have a positive outlook for oil now. But the other part of the market is still rather skeptical about the prospect of markedly higher prices. The decision to rein in production by members of the OPEC last month succeeded in pushing prices above $50 a barrel. But a sustained rally will be probably held back by the return of U.S. shale oil production from previously unprofitable fields. It is considered that the price level around $60 would give a strong impetus to the bulk of the current U.S. shale industry.
For now, rigs targeting crude in the U.S. rose for a seventh consecutive week to the highest level since February: by 4 rigs to 432. U.S. explorers have now added more than a hundred rigs since a steady expansion began in June. The continual increase in the number of rigs may suggest that the upward trend in crude prices should be capped, with the threat of U.S. oil output returning.
China crude output stabilizes after falling to six-year low. Production added 0.3 percent last month to about 3.9 million barrels a day, rebounding from the lowest since December 2009. It is expected output may stabilize at around 16.25 million to 16.5 million tons a month in the last quarter of the year with prices around $50 a barrel.
Meanwhile, China’s crude imports rose to a record: a new strategic reserve site – Zhoushan emergency reserve facility on Aoshan island – became operational. The country imported 33.06 million metric tons of crude in September (about 8.08 million barrels a day). China’s net fuel exports were at 2.37 million tons last month, also near the record 2.49 million in July. Falling domestic production, expanding storage capacity and a seasonal rising in demand through winter will likely support China’s crude imports in the fourth quarter.
All in all, it seems that the market is entering into a period when two conflicting influences, the possibility of an OPEC agreement to at least freeze production and U.S. producers’ readiness to increase production at prices above $50, are effectively cancelling each other out. We expect bunker prices may have some chances to rise slightly next week while irregular changes will still prevail.
* 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)
Source: Marine Bunker Exchange