World fuel indexes have started the week by insignificant irregular changes, as supportive rhetoric from OPEC over the weekend was not convincing enough to compensate fears of ongoing strong supply this year. Meantime, speculative positions in oil and fuel have reached their highest level in two-and-a-half years. Money managers are buying into the fact that OPEC and Non-OPEC are implementing a strong degree of compliance, and that it may finally serve to help balance the global fuel 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 Jan.19 – Jan.26:
380 HSFO – down from 312.21 to 309.14 USD/MT (-3,07)
180 HSFO – down from 354.29 to 352.71 USD/MT (-1,58)
MGO – up from 526.93 to 528.71 USD/MT (+1,78)
As per OPEC, global oil stocks have already started falling, but they need to drop by another 270 million barrels so that the oil market may come to balance. OPEC has declared that its main goal is to speed up the inventory drawdown, and it will continue to focus on bringing the level of drawdown near a five-year industry average. Organisation’s latest Monthly Oil Market Report (published on Jan.18) said that total OECD commercial stocks fell in November 2016 to stand at 2.993 billion barrels, some 271 million barrels above the latest five-year average.
At the same time OPEC and other oil producers agreed on a way to monitor their compliance with last month’s supply deal. The countries have already cut oil supply by 1.5 million barrels a day, more than 80 percent of their collective target, since the deal took effect on Jan. 1. Saudi Arabia has already exceeded its target with an output reduction of more than 500,000 barrels a day while Algeria and Kuwait have also cut to levels beyond their targets. Other OPEC members such as Iraq and Venezuela have not yet reached their quotas but say they are more than half-way there. Russia has pared production by an average of 100,000 barrels a day (with a target of daily reduction of 300,000 barrels by April or May).
Iraq, the second-biggest OPEC producer, has reduced supply by 180,000 barrels a day and will cut a further 30,000 a day by the end of the month. While 90 percent of Iraq’s output cuts have come from fields operated by companies run by the federal government, Baghdad is also coordinating reductions with the semi-autonomous region of Kurdistan and international oil companies.
Libya in contrast is planning to raise output by 75 percent to 1.25 million barrels a day by the end of 2017 as blockades at the nation’s main oil ports have ended. Last month it re-opened two of its biggest oil fields and restarted its largest export terminal, Es Sider. The Zawiya terminal restarted this month after a two-year halt. The country, exempt from the supply cuts, is currently producing 715,000 barrels a day, the highest level in three years.
Equatorial Guinea is in talks to join OPEC. The rationale for the decision is not yet clear as the nation is seeing more growth from its LNG industry than it is from crude. At the same time it is already participating in the OPEC / NOPEC production cuts, agreeing to cut output by 12,000 bpd. The country is producing around 200,000 bpd, the majority of which is ex-ported.
All in all it is expected that all countries would reach full compliance with the deal next month so that brimming global stockpiles of crude oil would return to normal levels by the middle of the year.
The IEA also sees the market moving towards a supply deficit in the first half of this year, helping to bring down oil inventories. But non-OPEC supply increases could offset that mo-mentum towards balance. IEA’s estimates for U.S. shale could also be on the conservative side. For its part, OPEC thinks U.S. shale will rise by 230,000 bpd instead of the IEA’s 170,000 bpd figure. Drilling activity is rising quickly – in December, the U.S. saw the largest monthly increase in the rig count in more than two years. Capital expenditures are rising, employment is positive, and the industry is becoming more efficient at drilling. So the end result could be higher prices in the near-term, but a renewed downturn in prices as U.S. shale comes back.
U.S. President Donald Trump said he was committed to achieving energy independence from the OPEC cartel and any nations hostile to U.S. interests by exploiting vast untapped domestic energy reserves. The U.S. imported about 3 million barrels a day from cartel last year (with Saudi Arabia and Venezuela accounting for 1.81 million). So at present OPEC (and a market as well) is waiting for a new U.S. energy secretary to take office to learn more about Trump’s energy policies.
China’s declining output may help offset the news regarding the country’s slowing demand growth. China’s imports rose at the fastest rate in a half-decade last year as it rushed to fill up its strategic petroleum reserve. With many storage facilities at capacity, China’s crude import demand was set to slow in 2017. But in order to satisfy domestic demand, China will need to find more supply to offset its declining output from its aging oil fields.
We do not expect any drastic changes on global fuel market next week. Bunker prices may continue insignificant irregular changes.
* 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