World fuel market has not had any firm trend during the week and prices have changed irregular. Stockpiles of crude oil and refined products around the world are running at record levels and still increasing, albeit more slowly than a year earlier.
Meanwhile, there are the signs that fundamentals are clearly improving on the supply and demand sides of the market. Global oil demand grew by 1.8 million bpd last year, the fastest for more than a decade, and is predicted to grow by another 1.2 million bpd in 2016. Global oil supply from outside the Persian Gulf and Russia is now falling rapidly and expected to decline at the fastest rate for more than 25 years in 2016.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) has not had any firm direction and showed only slight irregular changes in the period of May 05 – May 12:
380 HSFO – up from 195,43 to 205,00 USD/MT (+9,57)
180 HSFO – up from 237,57 to 247.21 USD/MT (+9,64)
MGO – up from 433,71 to 450.71 USD/MT (+17,00)
A fire in Alberta, Canada was one of the supportive factors for fuel indexes this week. Oil companies have been forced to evacuate workers and shut in production. At the moment oil sands production is expected to gradually increase. Oil companies around the Canadian energy hub of Fort McMurray began to restart operations May 10 after a week-long shutdown. The fires have decreased daily crude production by around 1.5 million barrels, leading to a significant tightening of global markets.
In Russia largest commodity exchange is courting international oil traders to join its emerging futures market. The goal is to increase revenue from Urals crude by disconnecting the price-setting mechanism from the world’s most-used Brent oil benchmark. Another aim is to move away from quoting petroleum in U.S. dollars. Having its own futures market would improve Russian oil price discovery as well as help domestic companies generate extra revenue from trading.
Data by the U.S. Energy Information Administration (EIA) shows that U.S. crude oil output has fallen by 410,000 bpd this year, and by 800,000 bpd since mid-2015. The drop in North American output, combined with disruptions in Latin America, were contributing to a fast erosion of global oversupply that peaked 2 million bpd last year. At the same time U.S. shale producers may take advantage of the rising price of WTI by tapping their drilled but uncompleted wells. There are 3,209 wells spud between Jan. 1, 2014 and Jan. 1, 2016 that remain uncompleted as of today.
Commercial U.S. crude stockpiles are still on top levels since October 1929. Supplies at Cushing, Oklahoma, the delivery point for WTI and the nation’s biggest oil-storage hub, are near a record. Refiners have already produced large volumes of gasoline and diesel, threatening to overwhelm demand despite the upcoming peak summer U.S. driving season. There are some concerns that refiners may lower their output and cut orders for new crude feedstock, putting downward pressure on prices.
Iran said it’s almost ready to talk with other OPEC members about limiting oil pro-duction as the country’s exports recover to levels reached before international sanc-tions crippled crude sales. The country last month refused to join other nations in a push to freeze output. Rising production and exports from Iran is bearish for fuel prices as output returns faster than expected. Crude and condensate output of about 4.2 million barrels a day is 800,000 barrels more than the country pumped in November and exceeds consensus estimates for the amount Iran would actually add to the market.
Fuel indexes have been also supported by the news that Saudi Arabia replaced its oil minister Ali al-Naimi over the weekend with the chairman of state energy company Saudi Arabian Oil Co. Khalid Al-Falih. Al-Falih is considered to be an ally of Prince Mohammed bin Salman, who has backed the nation’s policy of prioritizing market share over prices and insisted any output freeze must involve Iran.
Almost at the same time Saudi Arabia declared plans of significant growth in output in 2016 and further international expansion. The kingdom is going to boost capacity at the Shaybah oil field by 33 percent to 1 million barrels a day in the next couple of weeks and will double natural gas production over the next decade. Saudi Arabia is seeking to reduce its reliance on oil sales amid lower prices for its most lucrative export. As a part of that effort is the plan to sell stock in Saudi Aramco for the first time.
Nigeria is suffering a worsening bout of oil disruption that has pushed production to the lowest in 20 years: attacks against facilities increase in number. In February, Royal Dutch Shell Plc declared force majeure after an attack on a pipeline feeding the Forcados terminal, which typically exports about 200,000 barrels a day. The forecasts predict Nigeria could lose an estimated $1 billion in revenue by May, when it expects repairs on Forcados to be completed. The terminal may not restart until June.
China’s oil output is expected to fall 6% this year: average 4.05 million barrels a day, down about 253,000 barrels a day from 2015. Meantime, China’s crude imports climbed to a record 7.34 million barrels a day in the first quarter, up 13 percent from the same period last year, as higher refining margin encouraged oil processors to boost purchases.
In general the situation on the world fuel market is still unclear: no consensus on whether prices move up or down. We expect irregular changes of bunker prices will continue next week.
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