MABUX: Global bunker market turns in the rebalancing direction
The Bunker Review is contributed by Marine Bunker Exchange
World fuel indexes are at their highest levels in months on the back of strong demand and some key supply outages around the world. Besides, easing fears about hurricane disruptions in the U.S. plus, another missile launch from North Korea last week have pushed fuel indexes up as well.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) has continued slight upward evolution in the period of Sep.14 – Sep.21:
380 HSFO - up from 326.86 to 329,36 USD/MT (+2.56)
180 HSFO - up from 367,07 to 368,71 USD/MT (+1.64)
MGO - up from 554.43 to 562.43 USD/MT (+8.00)
The International Energy Agency (IEA) published an encouraging Oil Market Report last week, noting that global oil supply contracted for the first time in months while demand remains very robust. The agency said that oil demand growth could hit 1.6 million bpd this year, an upward revision from the 1.5 million bpd estimate last month. Refined product inventories are also nearing the five-year average level, a sign that the oil and fuel market is making a great deal of progress towards rebalancing. The report also dismissed fears that the hurricanes in the U.S. would dramatically reduce demand – the agency said any effects will be short-lived.
Meantime, as per the IEA, investments are returning to the oil industry too slowly to eliminate the risk of tighter supply that would, in turn, cause price volatility even in the context of slowing global oil demand growth. Over the longer term, to 2040, the IEA forecast the share of oil in the global energy mix will decline only slightly, from 33 percent in 2015 to 31 percent in 2040, which means stable growth in demand as part of the growth in wider energy demand.
OPEC in turn revised up its forecast for global oil demand growth as well, predicting consumption will expand by 1.42 million bpd this year, an upward revision of 50,000 bpd from a month earlier. Meanwhile, OPEC’s collective oil production dipped in August for the first time in four months. Output fell by 79,000 bpd in August from a month earlier, mostly the result of sizable outages in Libya, but also because compliance with the group’s cuts improved among other OPEC members. OPEC’s estimate for oil inventories in OECD countries also declined for the third consecutive month, putting total storage at 195 million barrels above the five-year average.
While OPEC members have cut some 1.2 million barrels of production over the past year (plus a little less than 0.6 million bpd from non-OPEC members), that has not actually translated to the same reduction in exports. In fact, oil exports from the participating countries remain elevated, undercutting the efficiency of the agreement. As per the Wall Street Journal, OPEC exports have only declined by 213,000 bpd, as countries sell product from storage or otherwise reduce consumption to leave more oil for export.
Iraq, the second-largest OPEC producer, may be facing a significant disruption to its oil exports this month. On September 25, citizens of the northern region of Kurdistan will vote in a referendum for national independence. If the referendum passes, as it is expected to, Kurdistan could begin proceedings to proclaim formal independence from Iraq, splitting the country in two. In fact, the referendum has very little international support: United States, the EU, Iraq and others have come out against it. But Kurdistan itself is rich in oil, possessing reserves equal to 45 billion barrels, and could potentially become a larger producer than Nigeria. According to some evaluations, Kurdistan currently exports about 600,000 barrels a day. As a potential result of the referendum, it’s possible that either Kurdish or Iraqi oil exports could be disrupted pushing oil and fuel prices further up.
Last week the U.S. kept sanctions relief in place for Iran and preserved the landmark 2015 nuclear deal. The move was closely watched because President Trump has repeatedly expressed his displeasure with the deal. Still, the Trump administration is in the midst of a strategic review regarding its policy towards Iran, with a more comprehensive approach expected to be announced in October.
Also, due to U.S. sanctions, Venezuela’s PDVSA reported it will no longer send or receive payments in U.S. dollars, instead choosing to work with euros. As per the statement, there will be a basket of currencies to liberate from the dollar and to fight against the economic blockade. But many view the policy as self-destructive.
In Nigeria oil workers stopped the loading of oil products and natural gas and joined an indefinite nationwide strike on Sep.19. They demand better conditions and pay. Among strike conditions are also that roads to oil facilities to be repaired and army personnel to be withdrawn from security duties at the oil infrastructure installations. The government, on the other hand, says the strike is illegal. The situation in both, Venezuela and Nigeria continues rendering the potential support to fuel indexes.
U.S. oil production rebounded sharply after a major disruption from Hurricane Harvey. After declining by about 750,000 bpd in the week after the storm, oil production currently stands at 9.51 million barrels per day (bpd) (up from 8.78 million bpd directly after the storm hit the U.S. Gulf Coast). Still, inventories climbed again in the most recent EIA data release, with about 15 million barrels added over the three-week period.
U.S. refineries along the Gulf Coast have been reporting a much better recovery than expected after being shut due to hurricanes Harvey and Irma. Meantime, the number of active oil and gas rigs fell last week by 8 rigs (the number of oil rigs decreased by 7 and the number of gas rigs - by 1) and now stands at 936 rigs, up 430 rigs from the year prior. Although the number of oil rigs are still up significantly year on year, the increases slowed in the second quarter, and have reversed in the third. The first quarter 2017 saw 137 oil rigs added in the United States, while the second quarter 2017 saw 97 rigs added. In stark contrast, the third quarter, for which there is still one weeks to go, has seen the total number of rigs decrease by 7.
North Korea fired another missile over Japan on Sep.15. The launch took place just days after the U.N. Security Council approved new sanctions against Pyongyang for its Sept. 3 nuclear test. A missile flew over Japan’s northern island of Hokkaido, far enough to reach the U.S. Pacific territory of Guam. U.S. Defense Secretary Jim Mattis hinted on Sep.15 about the existence of military options on North Korea that might spare South Korea from a counterattack. But he declined to say what kind of options he was talking about or whether they involved the use of lethal force. The tension on Korea peninsula is still the factor supporting fuel indexes recently.
There are more signs that the global fuel market has turned into the rebalancing direction. We expect bunker prices will continue upward evolution next week.
* 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)