Expert says geopolitical factors make predicting movements in bunker prices uncertain
The Bunker Review is contributed to IAA PortNews by Marine Bunker Exchange
Oil indexes have had rather high volatility this week when geopolitical tension was a key factor that affected fuel prices, the MABUX bunker review said. Concerns over the crisis in Ukraine worsening are supporting fuel prices as markets worry about an escalation in a conflict. Crimea's parliament voted to allow the southern Ukrainian region to become part of Russia and scheduled a referendum on March 16. The U.S. and some European countries have declared Crimea’s referendum on independence as unconstitutional. Ukraine's government appealed for Western help to stop Moscow annexing Crimea. At a summit in Brussels next week, European Union leaders are expected to call for measures that would cut Europe's reliance on imported natural gas from Russia. The U.S House of Representatives passed the Ukrainian aid package which would supply $1 billion in loan guarantees. Worsening diplomatic relations between Ukraine and Russia will continue to be a key factor to stoke supply fears while risk premium in fuel prices will still exist.
Expectations of larger U.S. stockpiles and potential weaker demand as winter ends are pressed fuel indexes down. An Energy Information Administration (EIA) report showed U.S. supplies rose three times as much as expected - by 6.18 million barrels last week (a gain of 2 million was forecasted) , and refineries operated at the lowest rate in four months (86 percent of capacity). Gasoline stockpiles tumbled 5.23 million barrels and distillate fuel decreased 533,000 barrels. At the same time the unemployment rate rose to 6.7 percent from a five-year low of 6.6 percent, but, according to the Labor Department’s explanation, the reason for that is that more people grew optimistic about their job prospects and began seeking work.
An unexpected fall in China's exports stoked fears of a slowdown in the world's No. 2 economy. Exports declined by 18% in February from a year before, which is the largest drop off in six months. The Chinese government reiterated its growth target of 7.5% for 2014. However, provincial level debt, a real estate bubble that is beginning to cool, and an effort to rein in lending could all contribute to a “hard landing” for the Chinese economy. Such concerns weigh on the markets, and put downward pressure on commodity prices.
Among other geopolitical factors market participants are also focused on the situation in Libya. The Libyan government voted Prime Minister Ali Zeidan out of office after a tanker loaded with oil from a rebel-held port escaped the navy, and ordered special forces to deploy within a week to "liberate" all rebel-held ports in the country's volatile east. Rebel militias have controlled three of Libya's major eastern ports for the past eight months, causing a sharp drop in the country's oil exports. As per official reports, El Sharara oilfield has increased production to around 200,000 barrels a day up from 150,000 bpd. However output can still remain uncertain in the long term.
As a resume, the market is still being driven by geopolitical factors rather than fundamentals, and it is therefore difficult to point to a clearer direction for prices at the moment.
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)