World fuel indexes have not had any firm trend during the week: demand holds steady and supply slightly drops off. The market is still projected to rebalance by the end of this year, or in 2017 at the latest.
OPEC is poised to go another meeting with no agreement on how much crude to produce. Forecasts said the Organization of Petroleum Exporting Countries won’t set an output target on June 2, as it sticks with Saudi Arabia’s strategy to squeeze out rivals including U.S. shale drillers by pumping near-record volumes. An accord on an output cap with non-members such as Russia collapsed in Doha last month when Saudi officials insisted Iran would need to take part.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) showed slight upward evolution in the period of May 19 – May 26:
380 HSFO – up from 211,50 to 219,50 USD/MT (+8,00)
180 HSFO – up from 251,36 to 257.64 USD/MT (+6,28)
MGO – up from 461,00 to 477.07 USD/MT (+16,07)
Wildfires in Alberta, Canada, were recently one of supportive factors for fuel indexes. Now all of the oil-sands facilities are being allowed to prepare for restart as cool, humid weather has helped contain the inferno. The province lifted mandatory evacuation orders for the last of the accommodation and production sites on May 23, and oil sands production should be resumed. More than 1 million barrels a day were halted by wildfires that ravaged the region since the start of May.
While demand is likely to grow, oil inventories remain at historically high levels. Crude stockpiles dropped 4.23 million barrels to 537.1 million barrels in the week ended May 20. Crude supplies at Cushing also fell by 649,000 barrels to 67.6 million. Inventories data has supported a bit fuel indexes. Meantime, U.S. oil production slipped an 11th week to the low-est level since September 2014: by 24,000 barrels a day to 8.77 million. The number of active oil rigs in the U.S. was unchanged at 318 last week, the least since October 2009,
Fuel market awaiting a recovery in crude are turning to floating storage. However, Morgan Stanley estimates that the one-month Brent storage arbitrage currently pro-duces a loss of $0.48 per barrel, while its six-month equivalent loses $6.11 per barrel. The prospect of debt-fueled oil storage trades may raise concern should crude prices fail to rise enough to offset costs.
U.S. Fed Funds futures are indicating for the first time since March a better-than-even chance that the U.S. central bank will raise interest rates by its July meeting. The speculation is driving a dollar rally pushing fuel prices down.
A French labor dispute that already caused fuel shortages at around 2,000 refuelling stations around the country and clashes between police and protesters worsened at the moment as nation’s oil refineries experienced disruptions or outright shutdowns. Workers are protesting against President Francois Hollande’s plans to change labor laws to reduce overtime pay and make it easier to fire staff in some cases. All eight of the nation’s refineries were affected by strikes. French strikes lead to fuel shortages, supporting the indexes.
In China private refineries are driving now crude purchases after the government allowed them to buy overseas supplies directly. As of end-February, 27 of the companies had received or applied for annual import quotas totaling 89.5 million metric tons, or about 1.8 million barrels a day. Total purchases climbed to a near record 7.96 million barrels a day in April. But still imports are at risk of limitation because of the ship traffic and lack of storage capacity. Besides, possible slowing refining profits mean the plants may have to cut processing rates, weakening their request for cargoes from overseas and pushing fuel indexes lower.
Iran plans to increase oil export capacity to 2.2 million barrels by the summer and has no plans to freeze its level of oil production and exports, because it’s still ramping up exports to pre-sanctions levels. The country is due to meet with other OPEC members at the June 2 summit.
Venezuela’s political and financial situation remain unstable and crude oil output fell to around 2.53 million barrels per day from 2.72 million same time last year due to drilling delays, sabotages and lack of maintenance. As a result, the country is offering its crude at its biggest discount since 2008 as it scrambles for revenue and battles for market share. Crude oil loadings last month, however, were at their highest since last October, amid planned and unplanned refinery outages.
Nigerian crude output has tumbled as militants resumed blowing up the pipelines in the Niger River delta. A wave of attacks this month are pushing production to a 27-year low of 1.4 million barrels a day.
All the above mentioned factors are still controversial and are not able to set up any firm trend at the moment. Bunker prices could continue insignificant irregular changes next week until new signs/data emerge that provide a clearer path forward.
* 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