MABUX: Upward trend in the global fuel market continues

The Bunker Review is contributed by Marine Bunker Exchange

World oil indexes have kept upward direction as the market braced for the impact of multiple supply disruptions (or possible supply disruptions) in Libya, Iran, Venezuela, and Canada. While oil supply disruptions in Libya, Canada, and Venezuela are already underway and expected to be either moderately long-term (Libya) in some cases, or infinite in others (Venezuela), Iran’s supply disruptions, or export disruptions, have not yet materialized, although the general consensus is that approximately 1 million barrels per day will be taken out of the market.

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) also continued slight upward trend in the period of Jun.28 – Jul.05:

380 HSFO – up from 445.64 to 449,29 USD/MT (+3.65)
180 HSFO – up from 484.21 to 484,43 USD/MT (+0.22)
MGO – unchanged from 674.21 to 674.21 USD/MT (0.00)

Morgan Stanley increased its forecast for Brent oil prices by $7.50 per barrel to $85, on expectations of more outages from Angola, Iran and Libya. The investment bank is holding an $85-per-barrel target for the next 12 months.

OPEC announced that it would restore about one million barrels per day to the market, beginning this month. Iran had opposed the move, partially in protest of sanctions from the Trump Administration. In reality, the output increase isn’t expected to exceed 700,000 barrels per day (bpd) because some members are already pumping at maximum capacity. Meantime, production from the OPEC already increased by 320,000 bpd in June. The 12 OPEC members with supply reduction targets increased output by 680,000 bpd compared to May.

However, it seems that this output increase won’t be enough to balance the oil market. The most recent Oil Market Report from the International Energy Agency (IEA) projected that by the end of this year, the call on OPEC is expected to be nearly 1.5 million BPD more than they were forecast to produce. Thus, even if OPEC managed to follow through on the full output increase, it would be insufficient to prevent further declines in global crude oil inventories. Expectations that this production increase won’t be enough to stabilize these inventory levels are the primary driver behind last week’s oil price surge.

Saudi Arabia reportedly will ramp up oil production to 10.8 million bpd in July, perhaps as high as 11.0 million bpd. The increase in production, however, could eliminate as much as 40 percent of Saudi Arabia’s spare capacity, taking available capacity down to around 1.5 million bpd.

Russia’s budget has received more than US$63.5 billion in additional revenues thanks to the production cut deal between OPEC and non-OPEC nations that boosted oil prices. Oil and gas exports account for around 40 percent of Russia’s federal budget revenues. Due to the unexpectedly high oil prices, Russia is currently on track to book a first budget surplus since 2011, at 0.45 percent of gross domestic product (GDP). Meantime, Russia suggested it could add 200,000 bpd from current levels, although independent estimates of what Russia can achieve vary.

Fuel prices were supported by news that the U.S. was pressuring its allies not to import oil from Iran, otherwise they risk sanctions. Iran currently exports 2.9 million barrels per day of crude oil and condensate to Asian and European markets. The U.S. laid out what sounded like a zero tolerance policy for nations cutting oil imports from Iran. That countries need to zero out their imports by November, and that it would be unlikely anyone would receive a waiver. The statement led to a spike in fuel prices because the market had to dramatically revise up the assumed outage from Iran. On June 28, a State Department official however appeared to soften the line saying that are prepared to work with countries that are reducing their imports on a case-by-case basis. In any case Trump Administration request could accelerate the depletion of global crude oil inventories and may drive oil and fuel prices even higher.

Besides, the U.S. military reaffirmed on Jul.04 its promise to help keep oil tanker waterways in the Persian Gulf open, after Iran hinted that it might try to block the oil exports if the U.S. continues actions to stop importing Iranian oil. On previous occasions over disagreements with the West in the past, Iran has threatened to block the Strait of Hormuz, which connects the Gulf and the oil-producing countries Saudi Arabia, the United Arab Emirates (UAE), Bahrain, Kuwait, and Qatar to the Indian Ocean.

India has already advised its refiners to prepare for a drastic reduction or zero oil imports from Iran by November. India, as a close neighbor and significant purchaser of oil from Iran, appears willing to decrease oil imports from Iran even as it does not recognize the U.S. sanctions as legitimate. India’s actions are an indication that Washington could apply far-reaching influence over Iran’s oil exports, even though much of the world is not lined up with the U.S. position.

Libya’s National Oil Corporation has declared force majeure on crude oil loadings from two oil terminals, which effectively removed 850,000 bpd from the country’s production. Hariga and Zueitina, like the rest of the terminals in the Oil Crescent, are controlled by the Libyan National Army, which handed control over them to the Benghazi-based NOC. Both are affiliated with the eastern government, which is not recognized by the UN. On June 29, the Benghazi-based NOC refused two loadings, one at Zuetina and one at Hariga, signaled it has no plans to compromise with the internationally recognized company, and declaring that all oil export revenues would go into an eastern-based central bank. The U.S., U.K., France and Italy expressed concern about the transfer to an entity other than the legitimate National Oil Corporation but with no result so far.

In Asia, the world’s biggest oil consumption region, seaborne oil imports have been falling since May, as higher costs turned off consumers and the escalating trade dispute between the United States and China starts to impact the economy.

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 5 rigs with the number of oil rigs decreasing by 4, and the number of gas rigs decreasing by 1. The oil and gas rig count now stands at 1,047-up 107 from this time last year. Besides, for the third week in a row, US production stagnated at 10.9 million bpd – close to the 11 million bpd production that many had forecast for the year.

Upward trend in the global fuel market continues supported by a combination of fears of Iran production outages, disruptions in Libya and a bullish stock draw in the U.S. We expect bunker prices may move upward 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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