04-06-2018

Bunker prices may change irregular amid high volatility on the market

World oil indexes have demonstrated steep decline in the beginning of this week on news that OPEC and its partners, including Russia, are considering a loosening of their production limits.

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) also demonstrated downward trend in the period of May.24 – May 31:

380 HSFO – down from 440.64 to 435,14 USD/MT (-5.50)
180 HSFO – down from 479.07 to 477,07 USD/MT (-2.00)
MGO – down from 707.21 to 692.57 USD/MT (-14.64)

Crude oil inventories in the Organization for Economic Co-operation and Development have fallen below their five-year average level. They are now 20 million barrels below that aver-age due to OPEC’s overcompliance with the production cuts.

Saudi Arabia and Russia are in discussions about raising their production limits, perhaps add-ing as much as 1 million barrels per day to the market. The group could announce a change in Vienna next month. The idea could be to bring compliance back down to 100 percent, which would mean allowing members to produce more to offset Venezuela’s declines. Nothing is finalized yet and the talks will continue for the next few weeks. Fuel prices sank on the news.

Russia has already confirmed it is going to discuss with OPEC in June whether it’s appropriate to gradually scale back oil-output cuts. Some of Russia’s largest oil producers called for more flexibility after almost 17 months of output curbs as the cuts have achieved their goal and crude prices near $80 a barrel are high enough. RF Energy Minister Alexander Novak plans to meet oil bosses to discuss the deal.

While Saudi Arabia and Russia have reportedly agreed to increase production, reports suggest that there isn’t agreement from the rest of the OPEC/non-OPEC to go along. Several producers are opposed to adding some production back into the market, since higher production levels would presumably come from Saudi Arabia and Russia, at the expense of other countries who are already producing as much as they possibly can.

India will continue importing Iranian crude despite U.S. sanctions. India is the biggest buyer of Iranian crude and imported an average 640,000 bpd last month, the highest since October 2016. There is also speculation that India could decide to settle its Iranian crude oil imports in national currencies to limit the risk of getting penalized by Washington. China, another major buyer of Iranian crude that has said it will ignore U.S. sanctions, may also decide to start using its nation-al currency to pay for the crude.

Meantime, Russian and Chinese state-owned companies are expected to take business opportunities in Iran after European companies leave. China’s Sinopec is moving to complete a $3 billion deal to develop a section of the Yadavaran gas field that Royal Dutch Shell had hoped to secure. CNPC could take an additional $1 billion stake in the South Pars gas field from its partner Total. A series of Russian companies have also completed deals in Iran.

The Saudi-led Arab military coalition destroyed on May 23 two boats of the Iran-aligned Houthi rebels threatening a commercial oil tanker in the Red Sea. Last month, a Saudi oil tanker was targeted by the Houthi movement off Yemen’s port of Hodeidah, sustaining minor damages and completing its course north. Yemen lies along one of the main global oil chokepoints in the Red Sea. In recent weeks, the conflict looks to have escalated, with Houthis firing ballistic missiles over Riyadh, in retaliation for air raids by a Saudi-led coalition. The Royal Saudi Air Defense intercepted at least one ballistic missile over Riyadh in that attack.

Libya’s oil crescent on May 27 announced a maximum security alert over possible terrorist at-tacks in vital oil ports and oilfields. The African oil producer faced oil production outages last week, too, as bad weather caused turbines to stop working. Approximately 120,000 bpd was shut in as a result of that outage, at a time when Libya is trying to raise its production above the 1 million bpd mark. In fact, Libya’s recovering oil production has been a swing factor for oil prices since 2016.

U.S. production continues to grow and exports are also set for a further increase: June shipments are projected to hit 2.3 million bpd, of which 1.3 million bpd will go to Asian buyers. U.S. crude is cheaper than both the OPEC basket and the Russia Urals benchmark. This is cause for concern in the cartel and in Russia, which has already made it very clear it would be happier with oil at around US$60 a barrel rather than US$80. Besides, there are concerns that U.S. port infrastructure won’t be able to handle much higher levels of exports. Export capacity data isn’t tracked and the exact capacity is not known, although it is thought to be around 3.5 million bpd.

We expect global fuel market will be in a state of high volatility on the threshold of OPEC+ meeting on Jun.22. Bunker prices may change irregular 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

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