World fuel indexes demonstrated slight downward trend during the week despite of signs that market rebalancing is ongoing. On the demand side, global refining activity is about to hit its highest on record just as crude supply disruptions around the world tighten the market. But there are also reasons to be sceptical that this year’s rally from less than $30 in January to around $50 today will be sustained. Production outages in Canada and elsewhere will probably prove temporary, U.S. shale producers may bring fields back on line as prices rise and global stockpiles remain well above historical averages.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) declined in the period of June 09 – 16:
380 HSFO – down from 236.57 to 221,79 USD/MT (-14,78)
180 HSFO – down from 275.07 to 264.57 USD/MT (-10,50)
MGO – down from 496.71 to 484.00 USD/MT (-12,71)
OPEC expected that the global oil market will be more balanced in the second half of this year as demand rises and rival supplies falter. Cartel kept estimates for world supply and demand in 2016 unchanged in its monthly market report. Disruptions in Nigeria reduced the group’s output to 32.36 million barrels a day last month, a bit below the 32.6 million average required to satisfy estimated demand in the second half.
The similar forecast was released by the International Energy Agency (IEA). As per EIA, the global oil market will be almost balanced next year as demand continues to rise faster than production, while the current oversupply is much smaller than previously thought. The surplus in the first half of this year is about 40 percent smaller than estimated a month ago. It was also noted, that inventory overhang that accumulated during years of oversupply will limit any significant increase in prices.
Forecasts predict available global refining capacity will reach 101.8 million barrels per day (bpd) in August, its highest on record, and up from around 97.25 million bpd in March – the factor which may support fuel indexes in a medium-term outlook.
Market is also looking ahead to a June 23 referendum that will determine Britain’s membership in the European Union. Polls show clearly that UK will probably leave the European Union. It may form a negative trend since it is expected to put Europe back into recession, putting more pressure on the global economy.
While the number of active oil rigs in the U.S. rose by 3 to 328 (for a second week) the U.S. output is still below last year’s peak, and explorers have idled more than 1,000 drilling machines since the start of last year. The $50-to-$60 a barrel area is believed to be a critical level as more U.S. producers are expected to return at $60.
Fuel indexes were pulled down by rising economic concerns in Asia. Japan’s business survey index (BSI) of sentiment at large manufacturers stood at minus 11.1 in April-June (compared with minus 7.9 in January-March). There are also worries about growth in China: country’s crude production dropped by the most in 15 years: by 7.3 percent in May from a year ago to 16.87 million metric tons – the biggest decline since Feb. 2001.
On the other part May trading data showed the biggest jump in China’s crude oil imports in more than six years, which is a support to the market.
Iran is seeking to boost output by 600,000 to 700,000 barrels a day over five years from fields in an area west of the Karoun River along the Iraqi border. Meantime, refining capacity is expected to reach 3.2 million barrels a day by 2020 from 1.85 million barrels a day. Country is going to sign its first contract with a foreign company within three months. Iranian factor is still a significant driver pushing indexes down.
Nigeria’s output dropped to the lowest in almost three decades as armed groups in-tensified attacks to rupture pipelines in recent months. Oil producers in Nigeria are facing a renewed wave of violence in the delta region that accounts for most of the country’s crude.
All in all Brexit is expected to be the most critical event next week which may slip EU into a recession and undermine global oil and fuel demand. We expect high volatility of bunker prices next week while slight downward trend may prevail.
* MGO LS
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: MabuxPrevious Next