25-06-2018

MABUX: OPEC’s Decision Will Determine Bunker Prices Moving Forward

World oil indexes have had rather volatile week with irregular fluctuations. Plenty of factors are influencing fuel prices right now, and the OPEC+ decision expected on June 22 will be the single most important driver in the near-term. There are still fears that OPEC could ease production curbs to offset falling supplies in Venezuela and an expected drop in Iran oil exports as U.S. sanctions loom.

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) demonstrated clearly defined downward trend in the period of June 14 – June 21:

380 HSFO – down from 429.86 to 424,36 USD/MT (-5.50)
180 HSFO – down from 471.79 to 462,29 USD/MT (-9.50)
MGO – down from 678.71 to 661.36 USD/MT (-17.35)

On the forecast side, the International Energy Agency (IEA) said that robust U.S. shale growth will underpin 2.0 million barrels per day (bpd) of non-OPEC supply growth this year, plus 1.7 million of non-OPEC output gains in 2019. That should more than meet demand growth. The agency also warned that even if the Iran-Venezuela supply gap is plugged, the market will be finely balanced next year, and vulnerable to prices rising higher in the event of further disruption.

Russia and Saudi Arabia said ahead of OPEC meeting, that even if the current OPEC/NOPEC oil production cut deal goes to pieces, both largest oil producers will be willing to go it alone, suggesting that some kind of market-managing efforts may remain in place, even if Iran and Iraq begin to disturb the collaboration. At the moment it is reported that Saudi Arabia and Russia will propose an increase in production beginning from July 1, with the range of the suggested in-crease at between 500,000 bpd and 1.5 million bpd. Both countries increased their May oil production to calm the oil market.

Meantime, some OPEC members (including Iran, Venezuela, and Iraq) are opposing an increase in production and argue that the pact should stay intact through the end of 2018, as planned. Iran’s OPEC representative said the country will veto any proposal for a production increase with the support of Venezuela and Iraq. Venezuela is already struggling with an inexorable decline in its oil production, which to a significant extent drove the overcompliance of the OPEC+ bloc with the agreed production cuts. Iraq, for its part, is eager to expand its production capacity but it will take time to do so. So, right now these three OPEC members are at a clear disadvantage to those capable of quickly restoring pre-agreement production levels.

There are a few possibilities from the upcoming OPEC meeting. First, Saudi Arabia and Russia may convince the group to agree to an increase in output, and while everyone nominally is al-lowed to increase output a bit, the two top producers make up the biggest share of the increase. Another possibility is a breakdown in negotiations and Saudi Arabia and Russia go their own way, increasing output. Or, talks could breakdown and there is no change in output, although with the upside risk to prices, this seems unlikely.

Venezuela’s production plummeted again in May, by 42,500 bpd from April to below 1.4 mil-lion bpd—1.392 million bpd. The IEA forecasts that Venezuela’s oil production could drop to just 800,000 bpd or even lower next year. Venezuela’s rig count number is in the 20s, while it needs it into above-40 territory to sustain production flat.

The major Libyan oil ports of Ras Lanuf and Es Sider were closed and evacuated after armed brigades opposed to the eastern commander Khalifa Haftar stormed them, causing a production loss of around 260,000 barrels per day (bpd). The two facilities account for 40 percent of Libya’s oil exports. Libya’s National Oil Corporation (NOC) said it had evacuated all staff from the two terminals as a precautionary measure. More than half the storage tanks at both terminals were badly damaged in previous fighting and have yet to be repaired, though there have been regular loadings from Es Sider.

It was reported a dip in the number of active oil and gas rigs in the United States last week. Oil and gas rigs decreased by 3 rigs, with the number of oil rigs increasing by 1, and the number of gas rigs decreasing by 4. The oil and gas rig count now stands at 1,059—up 126 from this time last year.

US oil production continues putting downward pressure on fuel prices, and for the week ending June 15, production reached 10.900 million bpd—close to 11 million bpd production that many had forecast for the year.

The U.S. Federal Reserve announced another rate hike, which helped edge up the dollar to a new high for the year. Meanwhile, the European Central Bank is heading in the other direction in an effort to keep sovereign bond yields under control. The ECB said it would keep interest rates low through at least next summer. The diverging policy paths for the two central banks points to a further strengthening of the dollar relative to the euro.

India and China have discussed creating an oil buyers’ club to be able to negotiate better prices with oil exporting countries and will be looking to import more U.S. crude oil in order to reduce OPEC’s influence, both over the global oil market and over prices. India has been saying for months that oil prices have risen too much to be sustainable for many oil-importing countries.

More crude oil is being stored on ships at sea in European waters than at any time in the past 18 months. A quarter of global floating storage is now located in European waters, compared to just 10 percent in March and April. The sudden increase in oil stored at sea is the result of Asian buyers raising up cargoes from the U.S., rather than from Nigeria, Angola and the Middle East.

Sentiment on fuel prices remained mostly negative, as markets continue to fear OPEC, as its meeting could ease production curbs to offset falling supplies in Venezuela and an expected drop in Iran oil exports as U.S. sanctions loom.  So, all eyes are on what course of action OPEC will call for. We expect OPEC will increase the output and so bunker prices may continue downward evolution 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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