03-07-2017

Bunker prices may continue mixed movements next week, expert says

mabux

The market was up so far this week after drop for the past five weeks. Despite of that world fuel indexes are still close to the levels they traded before OPEC and 11 non-OPEC producers agreed to a production cut deal in an effort to decrease the glut and push prices up. The nine-month extension to the deal, until March 2018, failed to lift oil prices significantly so far. The counter-factors are still the U.S. shale resurgence, rising output from other producers that are not part of the deal, and increased production within OPEC (exempt Libya and Nigeria, and non-complying Iraq).

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) turned into slight upward movement in the period of Jun. 22 – Jun.29:

380 HSFO – up from 275.21 to 284.36 USD/MT (+9.15)
180 HSFO – up from 315.50 to 325,93 USD/MT (+10.43)
MGO – up from 465.21 to 473.64 USD/MT (+8.43)

OPEC’s plan has not yielded the desired results, and a global glut continues to rise. OPEC producers are holding discussions on potentially deepening the cuts, although some cartel members believe that the current deal needs more time to take effect on the fuel market.

As a sign of global glut, cargo tracking updates revealed that global crude oil floating storage had hit the highest level since the start of 2017, at an average of 102 million barrels over the ten-day period to June 16. The amount of crude in floating storage increased the most in the North Sea by some 32 percent, in Singapore by 23 percent, and in Iran by around 16 percent.

Besides, outdated supertankers are becoming the storage units for commodity traders looking to take maximum advantage of the low oil price. 10 very large crude carriers (VLCCs) aged between 16 to 20 years have been employed as excess crude storage since the end of last month (each unit holds 2 million barrels of oil). Thirty other supertankers are parked in Singapore and Malaysia’s Linggi.

The diplomatic crisis in the Middle East continues, peaking when the Arab states boy-cotting Qatar issued a list of 13 demands (including cutting ties with Saudi archrival Iran, and closing the Al-Jazeera TV network). 10 days were given to meet those demands. Qatar, for its part, has said that it would not negotiate while the neighbors are boycotting it, and would not give up what it believes are its own internal affairs.

Libya is now targeting to further increase its oil output. Its most immediate goal is to reach 1 million bpd of production by the end of July, which would further compli-cate OPEC’s efforts to reduce global inventories. However, Libya’s output increase is still open to question. Production could sharply drop again, given the political rivalry between factions and the fragile security situation in country. So both scenarios: production increase to 1 million bpd or unrest could cause a drop – are possible. For this reason, Libya’s production over the next few months could be one of the drivers for OPEC and global oil supply.

Nigeria is set to increase exports to 2 million barrels per day in August. The African nation is exempt from the terms of the cartel’s deal. Loading plans show 2.02 million bpd of shipments planned on 67 vessels, some of which had previously been scheduled for July, but had to be pushed back due to loading delays.

The Kharg oil terminal in Iran has increased its crude oil loading capacity to 8 million barrels per day. Iran’s exports are currently more than 2 million bpd of crude oil, plus another 600,000-700,000 bpd of condensates. The Kharg oil terminal crude loadings account for 95 percent of Iran’s crude oil exports.

The number of active oil and gas rigs in the United States rose again last week by 8, marking 23 weeks of gains. The number of oil rigs in operation increased by 11, while gas rigs decreased by 3. Combined, the total oil and gas rig count in the US now stands at 941 rigs, which is 520 rigs over a year ago today, when oil prices were significantly higher than they were today. U.S. weekly production declined 100,000 barrels per day (bpd) to 9.3 million bpd (the biggest decline in weekly output since July 2016). However, it could be related to temporary factors like Tropical Storm Cindy in the Gulf of Mexico and maintenance work in Alaska that will likely be reversed in coming weeks.

One unknown factor is the possibility that crude prices in the mid-$40s could actually put a lid on shale production. If U.S. shale underperforms over the next year, the OPEC deal could succeed in balancing the market. But if U.S. shale continues to rise, and OPEC fails to extend its deal beyond the first quarter of 2018, fuel indexes could fall further.

India’s oil demand is expected to rise to 4.5 mb/d this year, an increase of about 200,000 bpd, which is equivalent to roughly 15 percent of the global increase. How-ever, those figures are not assured, and the country’s long-term demand growth is not a given either. India has launched an ambitious program to accelerate the adoption of electric vehicles, which could cut demand growth. But still critics question is how realistic it is.

As a resume, there are no visible upward drivers on the bunker market, and the fundamentals continue to look poor so far. We do not expect any real upward evolutions of bunker prices next week while the most likely outcome will be irregular changes.

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* 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)

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Source: Marine Bunker Exchange

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