23-01-2017

MABUX: Bunker prices may continue upward trend next week

Mabux

Oil prices have been showing signs of weakness in recent days as concerns over excess supply are starting to grow again, potentially levelling the breaks of an almost two-month period of optimism stemming from the OPEC deal.

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) did not have any firm trend and finally demonstrated downward evolution in the period of Jan.12 – Jan.19:

380 HSFO – down from 319.57 to 313.07 USD/MT (-6,50)
180 HSFO – down from 359.86 to 355.14 USD/MT (-4,72)
MGO – down from 530.00 to 527.36 USD/MT (-2,64)

As a result of rising oil prices in December, the U.S. Energy Information Administration (IEA) has increased its forecast for both Brent and WTI crude oil prices by $2, and now sees Brent prices averaging $53 and WTI averaging $52 per barrel this year. As per Agency, the two key factors that could push crude prices up this year would be strong demand and the agreement between OPEC and 11 non-OPEC producers to curtail crude oil supply. Potential downward pressure on oil prices may come from the expected rise in global output, which would also reduce the potential for significant oil price increases through 2018.

There are still concerns over OPEC’s sincerity in regard to the promised 1.2 million barrels per day in output reductions.

Saudi Arabia confirmed last week that the country had reduced oil production to less than 10 million barrels a day. This is lower than the pledged amount of 10.05 million barrels and brings Saudi output to its lowest in 22 months. The Kingdom also said that it is planning even deeper cuts in February. Meantime, Saudi Arabia considers that OPEC probably won’t need to extend a deal it reached with other crude producers to cut output, as the re-balancing of the oil market may take place by the end of the first half of the year.

Iraq pledged to cut 210,000 barrels a day to 4.35 million barrels a day starting in January. So far, Iraqi officials say the country has reduced production by 160,000 barrels per day. However, based on export figures, there appears to have been no reduction at all. For February Iraq is going to export 3.64 million barrels per day of crude (versus averaged 3.51 million barrels per day in December representing a record high even then).

Iran isn’t cutting because OPEC exempted it from the deal, allowing it instead to increase production by 90,000 barrels per day as Tehran strives to reach its pre-sanction output levels of 4 million barrels per day.

Russia says it has begun cutting as well, in line with its commitment to reduce output by 300,000 barrels per day. According to officials, oil output was reduced in the first 10 days of January by an even larger amount than had been planned—but again, no details.

On the other hand, last week data from EIA showed a 176,000-barrel-per-day increase in U.S. production from the previous week. This was the biggest increase since May 2015, and it seems logical that U.S. shale producers would take full advantage of the pending market re-balance. The EIA anticipates that U.S. production for December 2017 could reach 9.22 million barrels a day by December, an increase of 320,000 barrels per day for the year. Prospects for 2018 are also rather optimistic: output seen to rise further to 9.3 million barrels daily.

After experiencing a loss of 700,000 barrels per day of production due to militant attacks on the Nigerian oil infrastructure in the Niger Delta in November, Nigeria managed to increase output by nearly 300,000 barrels per day, bringing production up to 1.8 million barrels per day.

Libya’s production is now close to 700,000 barrels per day, and is eyeing 900,000 barrels per day within the next few months, but the target is 1 million barrels per day by the end of this year.

China’s production is forecast to fall by as much as 7 percent this year, extending a record decline in 2016. That’s about the same size as the output cut agreed by Iraq. While China consumes more oil than almost any other country, it’s also one of the world’s biggest producers. China’s output slumped in 2016 as state-owned firms shut wells at mature fields that had become too costly to operate after the crash. Crude production fell 6.9 percent in the first 11 months of 2016 to about 4 million barrels a day, the first decline since 2009 and the biggest in data going back to 1990. Meantime, China’s oil imports in 2016 grew at the fastest pace in six years and the nation was the world’s biggest buyer in December. Inbound shipments climbed 13.6 percent last year, while imports in December rose to record 8.6 million barrels a day.

At the 22 January meeting in Vienna, chaired by Kuwait, major OPEC and non-OPEC pro-ducers will decide what the acceptable level of compliance will be. They will also start discussing whether the deal will be extended beyond June— with a final decision expected in Vienna on the 25th of May. We expect that positive signals from the meeting can render an additional support to the bunker prices next week.

* 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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