World fuel indexes have started the year with a positive trend. However, prices declined sharply at the start of this week on fears of rising U.S. shale production and a reversal of speculative bets by hedge funds and other money managers, a sign that optimism in crude prices might be reaching its limits. There are two major potential drivers at the moment, each pushing in opposite directions on the market. The OPEC deal is going to take oil off the market, while U.S. drilling is expected to add new supply. Each of the trends may ultimately drive fuel prices one way or the other.
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 Jan.02 – Jan.12:
380 HSFO – down from 322.36 to 317.71 USD/MT (-4,65)
180 HSFO – down from 360.64 to 358.00 USD/MT (-2,64)
MGO – up from 529.36 to 530.57 USD/MT (+1,21)
OPEC’s crude production fell by 310,000 barrels a day in December, as unplanned disruptions in Nigeria reduced the group’s supply. Nigeria’s daily output dropped by 200,000 barrels to 1.45 million in December, ending three months of gains as the African nation struggled to restore capacity after a year of militant attacks on oil infrastructure.
Overall, the Organization of Petroleum Exporting Countries – excluding Indonesia which suspended its membership on Nov. 30 – pumped 33.1 million barrels a day in December. That compares with a November total of 33.41 million barrels a day for the 13 continuing members of the group, or 34.14 million including Indonesia’s daily output of 730,000 barrels.
At the moment there are early signs that OPEC members are meeting their commitments. Saudi Arabia said last week that it is lowering its production in January by 486,000 barrels per day, a volume that it promised to cut as part of the November deal. That will take output down to 10.058 million barrels per day, a level that was required to meet as an average over the January to June time period. This step increases the chances that OPEC will stay true to its promises.
Kuwait and Oman in their turn also give the first signs the curbs are being implemented. OPEC member Kuwait has reduced output by 130,000 barrels a day to about 2.75 million a day. Oman is cutting 45,000 barrels a day from 1.01 million.
Russia’s oil production has shrunk by around 130,000 barrels a day in the first week of January (initial goal was to cut at least 50,000 barrels a day this month). Kazakhstan in turn cut production by 20,000 barrels a day in January. The combined 150,000 barrels a day cut represents 27 percent of the promised reduction by non-OPEC countries.
There are, however, also signs that doubts about the compliance of OPEC and non-OPEC parties to the production cut agreement are growing. Unlike in the U.S., where output is pub-lished weekly, members of the Organization of Petroleum Exporting Countries can take much longer time to disclose their production. Besides, their data can be put into the question by independent surveys. So each new hint on the accord’s implementation may swing prices.
The first indications are expected to come at the start of next month, when Bloomberg, Thomson Reuters and Platts publish surveys of production. A week or two later the estimates from the International Energy Agency and U.S. Energy Information Administration will be published. OPEC won’t publish production levels until the middle of next month. Monitoring the 11 non-members collaborating in the deal could be even harder, as data for the smaller producers like South Sudan and Equatorial Guinea could be rather fragmentary.
Among other minor worrying signs: the U.S. announced on January 9 a notice of sale from its strategic petroleum reserve, with plans to sell 8 million barrels for delivery over the course of February, March and April. Meanwhile, Libya is seeing rapid gains in oil exports after the reopening of a key export terminal, with output rising to 700,000 bpd (it produced 580,000 in November). Nigeria – which, like Libya, is exempt from the OPEC deal – is intent on restoring production too. That could put additional pressure on prices.
Besides, a report at the end of last week showed another solid build in the U.S. rig count by 4 to 529, the tenth consecutive week that the oil industry added active rigs. This is the highest level since the week ended Jan. 1, 2016. Companies have added more than 100 rigs since the end of September. As per some forecasts, the U.S. rig count to rise to 850-875 by the end of the year, with spending on exploration and production set to increase 27 percent in North America. It is unclear at the moment, how rising U.S. supply and falling OPEC output will ultimately balance out.
All in all we expect slight upward trend will prevail in the dynamics of global bunker prices next week as news of the OPEC nations maintaining their quotas will provide a temporary support.
* 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 ExchangePrevious Next