06-08-2018

MABUX says bunker prices may turn into a phase of irregular changes next week

It was mostly a quiet week for world oil indexes. Geopolitical tensions threatened both Iranian and Saudi Arabian oil, but a rising rig count and U.S crude inventories had erased those gains. The global crude oil supply picture indicates that the market is going to tighten further, while oil demand is still holding up pretty strong.

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs), turned into slight downward trend in the period of Jul.26 – Aug.02:

380 HSFO – down from 444.86 to 440,71 USD/MT (-4.15)
180 HSFO – down from 491.79 to 487,43 USD/MT (-4.36)
MGO – down from 674.14 to 668.00 USD/MT (-6.14)

Bank of America Merrill Lynch said that the downside risks to oil prices are relatively limited, suggesting that the oil market could see a supply deficit of around 400,000 barrels per day in the second half of 2018. Inventories may not be falling quickly anymore, but they aren’t rising all that much either. EIA crude stocks are now at their lowest level in more than three years, while for the OECD as a whole, they are right around the five-year average.

OPEC’s oil production jumped to a 2018 high in July, as Saudi Arabia and its close Gulf allies boosted production. The production volumes were also increased due to the acceptance of a new member, the Congo Republic, which has been a member now for more than a month. OPEC’s crude oil production rose by 70,000 bpd from June to stand at 32.64 million bpd in July—the highest production level for 2018 so far. Saudi Arabia’s production in July has been 10.65 mil-lion bpd (up from 10.60 million bpd in June). The biggest drop in production was in Iran—by 100,000 bpd, as U.S. sanctions loom, serving as a deterrent for buyers. The other OPEC members with drops in production were Venezuela, Angola, and Libya. OPEC’s compliance rate dropped to 111 percent in July from a revised 116 percent in June, still above the 100-percent compliance rate agreed upon at the June meeting.

Saudi Arabia halted shipments through the crucial chokepoint of Bab el-Mandeb last week after Houthi rebels attacked two Aramco tankers. Nearly 5 million barrels per day of oil volumes pass through the narrow strait between the horn of Africa and Yemen. As per some versions, Saudi officials could be trying to draw western powers into the war with Yemen by sounding the alarm on the threat to oil shipments, or it could be putting pressure on Europe to take a harder line on Iran.

The big driver in determining the balance in the physical market will be how much oil from Iran is lost due to U.S. sanctions. And that means that the Trump administration will have a lot of influence over what happens next. Iranian officials said that oil prices would rise if the U.S. did not grant waivers to countries purchasing Iranian oil. As per Iran, it would be wrong to assume that Saudi Arabia could cover for the supply shortfall.

Anyway, at the moment some Indian companies (India is the second biggest buyer for Iranian oil) already reduced or even cancelled orders for Iranian crude oil because they couldn’t obtain insurance for the shipment, due to U.S. sanctions. Besides, some big Indian refiners worry that their access to the U.S. financial system could be cut off if they continue to import Iranian oil. The cancellations suggest U.S. sanctions are going be rather effective. Iran in response is trying to offer India cargo insurance and tankers operated by Iranian companies.

Oil and gas rig workers conducted a 12-hour strike on Jul.30 at platforms in the North Sea operated by Total, in the latest industrial action by the employees. The dispute arose after Total wanted to place workers at the platforms on a three-week rotation system instead of two. A week ago oil and gas rig workers staged a 24-hour strike at Total’s oil and gas platforms Alwyn, Elgin, and Dunbar. Due to the strike, gas flows to the UK shores were disrupted last week, but stored crude oil was expected to offset any impacts on oil supply.

As the U.S.-China trade war is escalating, China is looking to boost its economy with measures to expand domestic demand and promote investments, including in infrastructure. In the oil market, the Chinese economic and fiscal package boosted investor confidence that a potentially stronger Chinese economy would raise oil demand. This news became a potential supporting factor for fuel prices.

Russian President Vladimir Putin has invited U.S. President Donald Trump to Moscow. Putin added that he is also ready to travel to Washington to meet Trump but said conditions need to be right for a meeting to take place. Russia and the United States also have plans for contacts at G20 summits and other international gatherings. Earlier it was announced that U.S. president wants to meet with Putin at the White House in 2019 – after the Justice Department’s probe into Russia’s alleged interference in the 2016 U.S. election has been completed. Anyway, global fuel market does not see any real impact from top U.S.-Russian contacts at the moment.

President Trump boasted about a breakthrough in trade relations with Europe. He said the two sides would have talks on zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods. Trump also suggested that Europe would buy up American LNG. The market welcomed the easing of relations. But already, both sides far apart on whether or not agriculture should even be considered as part of the negotiations.

Weekly U.S. oil production dropped by about 100,000 bpd to 10.9 million bpd last week. The country has added nearly 1 million bpd in production since November, due to rapid increases in shale drilling. In another worrying sign, the U.S. rig count, an early indicator of future output, rose by 3 to 861 last week. That was the first rig count rise in three weeks, pointing to signs of U.S. output possible growth already this week.

Oil and fuel prices took a breather in the second half of July, but the price correction may have been a temporary reprieve rather than the start of another decline. We expect bunker prices may turn into a phase of irregular changes with no firm 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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