No firm trend was formed during the week and the global fuel market is still in a waiting mood. There are some signs that the rebalancing is under way. The latest tightening has come from outages in Nigeria and Libya but these are unlikely to last. Ultimately, the rebalancing remains dependent on an ongoing contraction in U.S. shale-oil production, and current prices are potentially throwing a lifeline to U.S. shale producers. The Organization of Petroleum Exporting Countries is unlikely to set an output target when it meets June 2 as it sticks with Saudi Arabia’s strategy of squeezing out rivals.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) showed insignificant irregular evolutions in the period of May 26 – June 02:
380 HSFO – up from 219.50 to 220,93 USD/MT (+1,43)
180 HSFO – up from 257.64 to 261.29 USD/MT (+3,65)
MGO – up from 477.07 to 479.29 USD/MT (+2,22)
OPEC members gathering in Vienna June 2 are expected to go along with a Saudi Arabia-led policy focused on squeezing out rivals amid signs the strategy is working. That means the meeting may be less fraught than the previous summit in December, which ended with public criticism of the Saudi position from Venezuela and Iran. The group may also choose a secretary-general to replace Abdalla El-Badri, whose term has been extended after members failed to agree on a successor. If production comes back and there are no efforts from OPEC to support prices by limiting output, that could lead to an easing in prices.
There are still signs of division within OPEC as well: Venezuela said the price recovery has had more to do with unexpected outages than a successful OPEC strategy.
Algeria considers OPEC’s Saudi-led strategy to defend market share and force rival producers out of business is yielding results. As per Algeria, the failure to reach a deal on freezing output in April in Doha represented a politicization of the Organization of Petroleum Exporting Countries not seen since 1973 when Arab producers imposed an embargo that triggered an oil crisis. Algeria itself has consistently opposed the OPEC’s Saudi-led strategy.
Companies in Canada are resuming operations after Alberta wildfires forced the evacuation of more than 80,000 people from Fort McMurray. Fires that began early May shut about 1.2 million barrels a day of production in Canada’s oil-sands region.
U.S. crude stockpiles probably dropped 2.5-3.2 million barrels to 535.1 million barrels in the week ended May 27. Crude supplies at Cushing also fell by 686,700 barrels to 66.9 million. Record inventories data has still supported fuel indexes.
U.S. oil production slipped an 11th week to the lowest level since September 2014: by 24,000 barrels a day to 8.77 million. Rigs targeting crude in the U.S. dropped by two to 316 through May 27 after no change the previous week,. Companies are still cutting the rig count (more than 1,000 machines were idled since the start of last year) and it may take months before any price increase can result in increased oil production.
China’s official factory activity gauge expanded only marginally in May, while a private survey showed conditions deteriorated for a fifteenth straight month. Chinese port congestion and refinery maintenance season will weigh on crude imports over the next few months.
Libya’s Petroleum Facilities Guard took control of the town of Bin Jawad near the Es Sider and Ras Lanuf oil-loading terminals. Libyan production has fallen to less than 400,000 barrels since armed groups attacked terminals in late 2014, closing them to oil exports. The country pumped as much as 1.6 million barrels a day of crude before the 2011 rebellion.
In Nigeria the government will seek talks with leaders of the oil-rich Niger River Delta region to end recent violence affecting production. Nigerian crude output has dropped to the lowest level in 27 years as militants increased attacks on pipelines in the Niger River delta.
We expect next week market will not have any firm trend again. 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)