23-07-2018

MABUX says high volatility remains in global bunker market

World oil indexes demonstrated biggest weekly loss in more than five months last week, and it seems that the global fuel market has seen a sudden shift in sentiment compared to just a week ago. The reasons for this are: the return of oil from Libya, the lifting of force majeure on a key oil pipelines in Nigeria, the possible return of oil from an outage in Canada, increased production from Saudi Arabia and the prospect of Strategic Petroleum Reserve (SPR) release from the U.S. Taken together, there is no such a lack of supply as it looked a week ago.

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) turned into down-directed trend in the period of Jul.12 – Jul.19:

380 HSFO – down from 445.36 to 427,43 USD/MT (-17.93)
180 HSFO – down from 485.50 to 471,71 USD/MT (-13.79)
MGO – down from 678.29 to 656.79 USD/MT (-21.50)

Russia said, that if the oil market needs more oil, the OPEC+ coalition will be able to quickly discuss it all together and make all necessary decisions, as OPEC+ has all needed tools. In fact, Russia and Saudi Arabia have both started to increase their crude oil production, even before the OPEC+ meeting on June 22. Saudi Arabia’s oil production jumped in June by 405,400 bpd compared to May, to reach 10.420 million bpd. Russia, for its part, is said to have pumped as much as 11.193 million bpd in the first four days of July, up from 11.06 million bpd in June.

Meantime, Saudi Arabia is offering extra oil on top of its contractual volumes to at least two customers in Asia, and one of those buyers agreed to take them. Saudi Arabia also cut last week its official selling prices (OSPs) by US$0.20 for most of its grades to the Asian markets for August. Saudi Arabia also said that OPEC+ would no longer focus on country-specific output limits but instead would heed a collective target, a switch that would free Saudi Arabia to ramp up production.

As per Goldman Sachs, unpredictable policy from the U.S. government is increasing volatility in the oil and fuel markets. The potential release of oil from the strategic petroleum reserve and the pressure from the Trump administration on Saudi Arabia to increase output has increased uncertainty. Most important, the uncertainty over how the U.S. will treat Iran sanctions has led to a spike in volatility.

After a few weeks of very tough rhetoric about Iran sanctions, U.S. Secretary of State Mike Pompeo signaled a softer line last week, noting that a lot of countries could request waivers. However, Treasury Secretary Steven Mnuchin said on Jul.12 the United States intends to impose sanctions on all customers of Iranian oil, including China, the EU, and Russia. Several European nations have requested a waiver from U.S. sanctions on Iran already, which would have allowed European companies in certain strategic sectors to continue to operate in the country. The U.S. rejected the request, an indication that Washington is going to give very little lee-way on sanctions. The tough U.S. line on Iran’s oil exports has had analysts raise their oil price forecasts, predicting that more oil will be removed from the market.

Iran in turn urged U.S. President Donald Trump not to tap the U.S. Strategic Petroleum Reserve (SPR) to bring oil prices down, but drop the sanctions against Tehran instead. U.S. Administration is actively considering releasing part of the 660-million-barrel SPR, with options ranging from a test sale of 5 million barrels to a release of as much as 30 million barrels, and even higher if coordinated with other countries. The purpose is to bring down oil prices-and gasoline prices-ahead of the mid-term elections in November, the same month in which the renewed U.S. sanctions on Iran are returning.

Meantime, Russia is getting ready to invest US$50 billion in Iran’s oil and gas industry as the two countries continue to seek closer ties. Russia was also studying all legal implications for a possible deal with Iran under which Moscow would provide goods to Tehran in exchange for oil.

Fuel prices were supported the last few weeks in large part because nearly 700,000 bpd was shut down in Libya. Last week the National Oil Corp. moved to lift force majeure on several export terminals, and said that it would begin restoring the disrupted supply. However, production at one of the country’s largest oil fields, Sharara, is now expected to drop again by 160,000 bpd after oil workers were abducted on Jul.14 and oil wells closed as a precaution. Over the past year, the Sharara oil field has seen numerous blockades by armed groups, and crude oil production has often been offline or reduced, even for weeks at a time.

It was reported an increase to the number of active oil and gas rigs by 2 in the United States last week with oil rigs staying at 863 and gas at 189. The oil and gas rig count now stands at 1,052—up 100 from this time last year. U.S. crude oil production last week hit 11 million barrels per day (bpd) for the first time in the nation’s history. The gains represent a rapid increase in output, as the data, if confirmed by monthly figures, puts the United States as the second largest producer of crude oil, just behind Russia, which was producing 11.2 million bpd in early July.

Intercontinental Exchange Inc. is going to launch an oil futures contract with physical delivery in Houston as soon as this quarter. For decades, the WTI contract based in Cushing, has been the benchmark for U.S. oil prices, but Houston has surpassed Cushing in terms of importance. The Houston area has a significant refining capacity, proximity to upstream production and the Gulf Coast has emerged as a major region for oil exports. As such, Houston reflects the dynamics of the crude trade much better than Cushing at this point.

China’s crude oil imports fell for a second month in a row in June to the lowest since December, as shrinking margins and volatile oil prices led some independent refiners to scale back purchases. June shipments came in at 8.36 million barrels per day (bpd) (down 9 percent from 9.2 mil-lion bpd in May). Imports for the first half of this year were still up 5.8 percent from a year ear-lier at 225 million tonnes, or about 9.07 million bpd.

That is rather unclear situation in global fuel market at the moment and it is rather hard to predict which driving force will prevail in the near future. We suppose bunker prices will change irregular and will be rather volatile 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: MABUX

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