27-08-2018

MABUX says bunker prices may continue upward trend next week

World oil indexes have turned into upward evolution last few days. Market is currently very much focused on the demand side, with concerns over the potential of trade wars to curb oil demand growth. On the supply side, market has shifted its focus onto losses from Iran, crumbling Venezuelan production, and whether OPEC and its allies will be able (and willing) to off-set supply disruptions.

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs), demonstrated moderate upward trend in the period of Aug.16 – Aug.23:

380 HSFO – up from 423.93 to 431.86 USD/MT (+7.93)
180 HSFO – up from 471.50 to 482.00 USD/MT (+10.50)
MGO – up from 669.21 to 678.64 USD/MT (+9.43)

The U.S. government has alternately said that it wants countries to cut their imports from Iran to zero while also signaling flexibility for countries that try to dramatically reduce their purchases of Iranian oil. India has considered cutting oil imports from Iran by 50 percent in exchange for a U.S. waiver on the rest. But China has indicated that it would be unwilling to comply with Washington’s demands. Chinese buyers of Iranian oil are starting to shift their cargoes to vessels owned by National Iranian Tanker Co (NITC) for nearly all of their imports to keep supply flowing amid the re-imposition of economic sanctions by the United States. All 17 crude oil tankers from Iran to China in July were operated by the Iranian tanker company. To compare, the previous month, Chinese companies operated 8 out of 19 tankers that shipped oil from Iran to China.

The shift demonstrates that China wants to keep buying Iranian crude despite the sanctions. Thus, the Trump administration is suggesting that it would slap sanctions on China, which would amount to yet another escalation in tension between the two countries. In short, the U.S.-China conflict is a huge pressure on the fuel market, despite of the potential for serious supply outages from Iran. China and the United States held trade talks this month in a bid to resolve an escalating tariff war.

Meantime, the U.S. Department of Energy is selling 11 million barrels of oil from the strategic petroleum reserve ahead of the November deadline for U.S. sanctions on Iran. The proposed sale of sour crudes are slated for October 1 through November 30.

Iran in turn told OPEC on Aug.19 no member country should be allowed to take over another member’s share of oil exports. It also asked the EU to speed up efforts to save a 2015 nuclear deal between Tehran and major powers.

The plunge in the Turkish lira has influenced several other emerging market currencies, most notably, Argentina’s peso and India’s rupee. That makes oil vastly more expensive in those countries, which ultimately could undercut demand.

A new round of protests by workers at Libya’s key Zawiya oil export terminal threaten to disrupt production at the Sharara oil field. Protests that have now led to stoppage of the 120,000-bpd Zawiya refinery, may lead to the major Libyan oil field shutting down completely. Earlier last week, Libya’s crude oil production exceeded 1 million bpd for the first time since June, when port blockades and a kidnapping caused production outages that within a month brought production to as little as 670,000 bpd. Amid this volatile security situation, many shipowners shun transportation of Libyan oil cargoes. This in turn raises the premiums of freights on Libyan routes by up to 10 points on the Worldscale (used to calculate freight rates for oil tankers) compared to freight rates on cargoes in the Mediterranean that don’t involve Libyan routes.

The five countries bordering the Caspian Sea have signed an agreement to settle longstanding territorial disputes over the control of Caspian oil and gas reserves. The region is estimated to hold about 48 billion barrels of oil and 292 trillion cubic feet of natural gas, according to a 2012 EIA estimate. The five nations include Russia, Kazakhstan, Iran, Azerbaijan and Turkmenistan.

The U.S. just slapped severe sanctions on Russia but the move won’t have a damaging impact on Russia’s energy sector as prior rounds of sanctions might have. One of the reasons is that Russia’s oil sector has pivoted away from western technology, western funding and western partnerships, reducing the industry’s vulnerability to U.S. sanctions.

Besides, the sanctions imposed on Russia, as well as the trade tensions between China and the U.S., may provide more room for energy cooperation between China and Russia. Russia’s poor relationship with the West forces it to look for new trade and investment partners, which could include China and countries in the Middle East. Russia has already become China’s single largest crude oil supplier, exporting crude oil worth US$23.7 billion in 2017. Now with Beijing possibly cutting imports from the U.S., Russia may seek to export even more crude oil to China.

Crude oil and fuel prices rose on Aug.22 following the Energy Information Administrations’ latest weekly petroleum status report, with the authority confirming a draw in crude oil inventories of 5.8 million barrels for the week to August 17.

The International Maritime Organisation (IMO) anticipates 3,800 vessels will undergo scrubber installation by 2020. But in May 2018, DNV GL reported just 817 vessels ordered or installed with scrubbers. In August 2018, Argus Media reported 842, 306 of which have the option to install, but without a date specified. Paltry compared to a total of 60,000 international dry bulk, container, tanker and commercial vessels. Ships without scrubbers will be required to use fuels with sulphur content not in excess of 0.5 percent from the current 3.5 percent, and, within Emission Control Areas, mostly in North America and Europe, the limit will be just 0.1 percent. There is an estimation that ship owners avoiding scrubbers will see fuel bills increase by as much as 25 percent as fleets are adjusted to more expensive, IMO 2020 compliant marine distillates.

We expect bunker prices may continue upward movement 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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