21-11-2016

Uncertainty on global bunker market pushes bunker prices further down

Mabux

World fuel indexes continued slight downward evolution during the week amid growing pessimism on possible oil output cut agreement and the uncertainty surrounding U.S. President-elect Donald Trump’s approach to the economy, global trade and geopolitics.

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) dropped in the period of Nov.10 – 17:

380 HSFO – down from 253.21 to 250.07 USD/MT (-3,14)
180 HSFO – down from 296.79 to 293.64 USD/MT (-3,15)
MGO – down from 471.00 to 456.79 USD/MT (-14,21)

The uncertainty after U.S. President elections still keeps fuel indexes in a high volatility mode. One of the main questions is Trump’s plans for domestic drillers. His policy could lead to an opening up for drilling on a much wider swathe of public lands. He would also be open to scrapping pending regulations on hydraulic fracturing and methane emissions, both top regulatory priorities for oil executives.

Meantime, U.S. shale producers are redeploying cash rigs and workers after Donald Trump’s election victory. Active U.S. drilling rigs rose by two, an increase in 21 out of the last 24 weeks. If American oil companies continue to increase production, they run the risk of compensating any OPEC output cuts later this month and pushing down prices on their own accord.

Trump’s victory also decreases the chances of a December rate hike by the U.S. Fed, as stock volatility could cause the Fed to wait on further monetary tightening and a weaker dollar would help push up oil prices. At the same time, Trump could appoint a monetary hawk as Fed Chair Janet Yellen’s term is up in 2018. That on a contrary could lead to higher interest rates and a stronger dollar, which would put some downward pressure on fuel prices.

One more thing is U.S.-Iranian relations. Trump promised to scrap the 2015 nuclear agreement with Iran and take a hard line approach with Tehran. Any signs of tensions with Iran would be an enormous uncertainty for oil and fuel prices. Greater friction between the U.S. and the Middle East could slap a risk premium onto oil and fuel.

The next test for global fuel market is whether OPEC can finalize an agreement to curb production at an official meeting on Nov. 30. The Organization of Petroleum Exporting Countries embarked on a final diplomatic effort to secure an oil-cuts deal. Its top official is heading on a tour of member states. Besides, OPEC and Russia will meet in Doha on Nov.17-18 for another round of talks without ministers from Iran and Iraq, the two countries that pose the biggest obstacle to a deal to cut production. Iraq has sought an exemption from joining any production cuts, arguing that its fight against Islamic State justifies special treatment. Iran has insisted it won’t accept any limits on its production until it has returned to the pre-sanctions level of about 4 million barrels a day.

Saudi Arabia orally is ready to cut production but only if all members agree to collective action, pledge to share the burden of cuts equitably, and do so in a way that is transparent and has credibility with the market. The output must be calculated by using OPEC estimates rather than relying on the countries’ own figures.

As a result of this polemics, the cartel, meeting on Nov. 30 in Vienna, is under growing pressure to formalize a deal. Talks last month failed to overcome internal disagreements, which in turn prevented a wider pact with non-OPEC producers. Without an accord, the International Energy Agency predicted a fourth consecutive year of oversupply in 2017.

Meantime, Libya plans to almost double crude production next year even as the producer group tries to implement a deal to trim production. The country currently produces 600,000 barrels a day and plans to boost output to 900,000 barrels a day by the end of 2016 and about 1.1 million barrels next year. Libya was able to ship 781,000 barrels from the port of Ras Lanuf on Sept. 21, the first international cargo from the terminal since force majeure was declared in December 2014. Es Sider (the country’s largest port) may resume exports within days. Libya, along with Nigeria and Iran, has been exempted from the OPEC’s oil cut output deal.

Daily oil production in China – the world’s second-largest crude consumer after the United States – fell to a seven-year low in October. Oil output dropped 11.3 percent from the same time a year ago to 16.1 million tons. Chinese oil production is falling as the country’s national oil producers remain cautious about raising production in the face of oil price uncertainties. After the U.S. presidential election many believe that Trump could be convinced of the value of exporting more oil and gas, but most are unsure about how the president-elect will view Chinese firms as operators of U.S. assets.

Oil companies are forced to book tankers to store as many as 9 million barrels of crude in northwest Europe amid signs that space in on-land depots is filling up. Lack of on-land capacity to hold the oil is the most likely cause of the buildup. Inventories in Amsterdam, Rotterdam and Antwerp are the highest for the time of year since at least 2013. The vessels in the North Sea would normally carry about 70 percent less oil. There are 14 to 16 Aframax-class tankers now storing crude in the region.

We expect bunker prices may continue slight downward trend next week amid growing pessimism and speculations on possible oil output cut agreement. The volatility on the bunker market will remain.

358_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)

731_Table2

Source: Marine Bunker Exchange

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