02-07-2018

Bunkers: Global fuel market is looking for the new drivers

World oil indexes have turned into upward direction: the OPEC meeting on June 22 resulted in OPEC agreeing to increase production to get back to agreed upon levels, which is about 1 mil-lion barrels per day (bpd) more than the cartel produced in May, when compliance to the quota was about 150%. The decision likely means that any country with spare capacity will be able to boost production. In practice, Saudi Arabia and Russia will carry the biggest shares.

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) followed the general upward trend in the global market in the period of Jun.21 – Jun.28:

380 HSFO – up from 422.93 to 445,36 USD/MT (+22.43)
180 HSFO – up from 460.86 to 483,93 USD/MT (+23.07)
MGO – up from 661.93 to 675.79 USD/MT (+13.86)

Major producers agreed to modest crude output increases to compensate for losses in production at a time of rising global demand. The joint ministerial monitoring committee of OPEC, Russia and the other non-OPEC partners has proposed a production increase of 1 million barrels daily after Saudi Arabia persuaded Iran to cooperate in efforts to reduce the crude price and avoid a supply shortage. The real increase, however, will be around 700,000 – 770,000 bpd, because several countries that recently suffered production declines will struggle to reach full quotas, while other producers may not be able to fill the gap. The actual output supported fuel indexes, as it came in below some of the highest figures that had been discussed prior to the meeting in Vienna.

Venezuela said the U.S. sanctions are affecting consumers worldwide and are an attack on the global oil market. Venezuela’s production plunged again in May, by 42,500 bpd from April to below 1.4 million bpd – 1.392 million bpd.

Libya briefly saw the outage of about 450,000 bpd of supply because of attacks from militants, combined with the destruction of several oil storage tanks. However, it was reported on Jun.22 that East Libyan forces have retaken the shuttered oil ports of Es Sider and Ras Lanuf, the two largest in the country. The three storage tanks that were destroyed will take years to repair. The latest news were that Libyan National Army had passed control of the country’s oil ports to a non-officially recognized National Oil Corporation affiliated with the eastern government of the country based in Benghazi.

The U.S. has asked Japan to completely stop importing Iranian crude while Japan has not yet decided how to proceed. The news follow reports about Russian and Indian companies preparing to pull out of Iran as well, after French Total announced its plans to leave the South pars project in the absence of a sanction waiver. Russian company Lukoil has already confirmed it has put its Iran plans on hold ahead of the sanctions deadline. South Korea is also cutting its imports from Iran: in May, these fell to a two-year low of less than 180,000 bpd.

China, on the other hand, said it will continue importing Iranian crude. The last time the U.S. sanctioned Iran, China put in place a payment system bypassing the U.S. financial system. It can pay for Iranian crude in yuan now, which will also work towards its goal to internationalize its currency.

Meantime, a growing number of foreign banks that helped Iran trade oil are pulling out over fears of U.S. sanctions, including banks that have no U.S. exposure. The banks fear losing ac-cess to U.S. dollars. The shrinking availability of finance from international banks could enlarge the disruptions in Iranian oil exports as well. Early estimates suggest that Iran’s oil exports have declined to 2.2 million barrels per day in June, down from 2.7 million bpd in May.

Another big uncertainty for fuel is the escalating dispute between the United States and its trading partners, which could hit U.S. crude oil exports to China. If a 25 percent duty on U.S. crude imports is implemented by Beijing, American oil would become uncompetitive in China, forcing it to seek buyers elsewhere. Chinese buyers are already starting to scale back orders, with a drop-in supplies expected from September. China is America’s second-largest single oil buyer after Canada.

It was reported another dip in the number of active oil and gas rigs in the United States last week. Oil and gas rigs decreased by 7 rigs with the number of oil rigs decreasing by 1, and the number of gas rigs decreasing by 6. This is the first oil rigs reduction in 12 weeks, lowering the total oil rig count to 862.

US oil production continues putting downward pressure on fuel prices, and for the third week in a row, US production reached 10.900 million bpd last week : close to the 11 million bpd production that many had forecast for the year.

The meeting in Vienna is over. The market seems to have digested the news of higher OPEC+ production and is looking now for the new drivers. We expect bunker prices may continue upward trend 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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