27-12-2016

Expert predicts quiet last week of 2016 for global bunker market

Mabux

As the holiday season sets in, world fuel indexes are holding steady with a relatively low level of trading. The Organization of Petroleum Exporting Countries agreed Nov. 30 to cut output for the first time in eight years. Non-OPEC producers including Russia will also trim supply. The reductions may trim swollen stockpiles as early as the first quarter. However, it appears that the OPEC effect is slowly fading, reducing the volatility on the market.

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) demonstrated insignificant and irregular changes in the period of period of Dec.15 – Dec.22:

380 HSFO – up from 305.93 to 311.64 USD/MT (+5,71)
180 HSFO – up from 344.64 to 349.43 USD/MT (+4,79)
MGO – down from 512.14 to 508.57 USD/MT (-3,57)

The International Energy Agency forecast global oil markets will swing from surplus to deficit in the first half of 2017 as OPEC and other producers follow through on an agreement to cut supply. Oil stockpiles will decline by about 600,000 barrels a day in the next six months as curbs by OPEC and its partners take effect. Russia, the biggest producer outside OPEC to join the deal, will gradually implement the full reduction it promised.

There are some signs the market is already starting to tighten. While inventories of crude and refined oil in industrialized nations remain 300 million barrels above their five-year average, they dropped for a third month in October, the longest run of declines since 2011.

The agency increased its forecast for global oil demand in 2017 by 100,000 barrels a day. Consumption will rise by 1.3 million barrels a day, or 1.4 percent, to 97.6 million a day.

Besides, EIA has downgraded its estimates of proved oil and gas reserves in the U.S.. Proved reserves of crude oil in the U.S. declined by 4.7 billion barrels or 11.8 percent from their year-end 2014 level to 35.2 BBbls at year-end 2015. Natural gas proved reserves decreased 64.5 Tcf to 324.3 Tcf, a 16.6 percent decline. Proved reserves are volumes of oil and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.

Since sanctions on its economy were eased in January, Iran has doubled exports as prices rallied and won approval from OPEC last month to pump even more while other members cut. The country has boosted production this year by 870,000 barrels a day and pumped 3.67 million barrels a day in November. Besides, Iran has been exporting more crude since April than it did under sanctions, and sales last month reached about 2.4 million barrels a day. At present the country is trying to attract more than $100 billion in foreign investment for an industry deprived for years of technology and funds.

Iraq added more uncertainty to the integrity of the OPEC deal this week, hinting that it would not make cuts to oil production immediately next month as the agreement requires. It was said that it would cut production by 200,000 to 210,000 bpd (in line with what Iraq agreed to as part of the Nov. 30 OPEC deal) but those reductions would occur in the first half of 2017 (instead of the January 1 deadline that OPEC has promised). The willingness of Iraq to sign on to the cuts was crucial to success in Vienna. Complicating matters is that unlike Saudi Arabia, Iraq has a significant private sector presence. The Iraqi government will likely have to cut output from state-owned fields rather than order international firms to cut back, which would not only scare away investment but also require compensation.

Libya reopened two of its biggest oil fields (Sharara and El-Feel) and is set to load its first crude cargo in two years from its largest export terminal as the war-torn country pursues plans to almost double output in 2017. The fields’ reopening will help boost the country’s oil production by 175,000 barrels a day within one month and 270,000 barrels a day within three months. The country is currently producing 600,000 barrels a day (less than half of the 1.6 million it pumped before a 2011 uprising) and is targeting production of 900,000 barrels a day by the end of this year and about 1.1 million barrels in 2017.

Industry data showed U.S. crude stockpiles unexpectedly rose 2.26 million barrels to 485.4 million last week. That compares with a forecast 2.5 million-barrel decrease. More than half of the gain was on the West Coast, where the distribution system is isolated from the rest of the country. U.S. crude inventories are at the highest seasonal level since the EIA began compiling weekly data in 1982. Crude supply at Cushing, the delivery point for WTI, slipped by 245,000 barrels to 66.3 million. The hub held 66.5 million barrels a week earlier, the highest since reaching a record in May. Refineries boosted operating rates by 1 percentage point to 91.5 percent of capacity, the highest since September.

North Sea crude in floating storage fell by more than 50 percent in November from a month earlier as tankers that held crude for as many as 4 months called at the ports.

We do not expect any drastic changes on global fuel market in the last week of 2016. Bunker prices may have insignificant and irregular fluctuations with no firm trend.

* 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

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