Bunker prices still maintain the potential for growth
The Bunker Review is contributed by Marine Bunker Exchange
After sinking for much a week ago, world oil indexes currently turned into the phase of irregu-lar changes. Market attributed the rise to tensions in the Middle East after the Trump administration announced the U.S. would move its embassy in Israel to Jerusalem, a move that was met with widespread protest in the region. Meanwhile, data from China showed strong crude import data for November, and the shutdown of the Forties North Sea pipeline knocked out significant supply from a market.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) demonstrated slight upward trend in the period of Dec.07 – Dec.14:
380 HSFO - up from 345.86 to 348,79 USD/MT (+2.93)
180 HSFO - up from 387,21 to 388,79 USD/MT (+1.58)
MGO - up from 576.57 to 588.14 USD/MT (+11.57)
OPEC plans to announce in June an exit strategy from the cuts, though it is not mean the pact would end by then. As per Kuwait's oil minister Essam al-Marzouq, OPEC and its allies will consider before June whether to end supply cuts earlier.
On the global supply side OPEC’s crude oil production fell by 133,500 bpd from October to stand at 32.448 million bpd in November: the lowest production the cartel has reported in six months. The largest increase among the members came from Nigeria, whose production in November went up by 95,800 bpd from October to 1.790 million bpd. Angola, Saudi Arabia, Venezuela, and the UAE saw the largest declines in production.
Saudi Arabia is going to cut its crude oil exports to Asia by more than 100,000 bpd in January compared to December, while keeping its shipments to Europe and the U.S. at the De-cember levels. Saudi Arabia’s overall global crude oil shipments will be kept at 6.9 million bpd in January. For December, the Saudis had cut total crude oil exports by 120,000 bpd from just above 7 million bpd in November, cutting shipments to all regions, including a 10-percent reduction of oil exports to the U.S.
Meantime, Russia was pressuring its partners in OPEC+ agreement to end it as soon as it is possible as it sees more advantages in lower oil prices. First, the lower the oil prices, the less motivated U.S. shale producers would be to expand their own production. Like OPEC, Russia sees U.S. shale boomers as the main threat to its positions in the global oil market. Besides, the Russian economy benefits from a weaker rouble, which could be ensured by lower oil prices.
Some reports said that Libya has immediate plans to raise oil production, which could re-kindle doubts about how long some OPEC members would stick to their promises to curb production. Libya (along with Nigeria) was originally exempted from the OPEC oil production cuts, agreed last November. The country is heavily dependent on oil revenues and was struggling with a rising budget deficit and soaring inflation amid continuing conflicts between various armed groups.
In Nigeria a major oil union has threatened to strike on December 18th in retaliation to a mass sacking of workers that had joined the organization. In addition, on Nov. 06 residents of the Bayelsa region in the Niger Delta disrupted oil production at a field operated by Shell, shut-ting down two oil wells. The oilfield in question has been safe from attacks on oil infrastructure in the Niger Delta, which began in 2017. Nigeria had shut nearly half of its oil production by the end of last year due to the strength of the anti-Abuja campaign in major oil-producing areas.
That added to fears of potential supply disruptions in the wake of growing Middle East political tensions after Saudi Arabia called for a review of US President Donald Trump's decision to direct the State Department to begin preparations to move the US Embassy in Israel from Tel Aviv to Jerusalem.
Britain’s Forties oil pipeline, the country’s largest at a capacity of 450,000 barrels per day (bpd), shut down on Dec.11 after cracks were revealed. A closure of this particular pipeline has global implications as the Forties system is the main carrier of the oil that underpins the Brent crude oil benchmark: the outage could disrupt North Sea oil supply as North Sea operators could be forced to curb production. It is expected, that more than 80 oil platforms would need to shut down because of the disruption.
US drillers are adding rigs for the fifth week in a row. The number of oil rigs climbed by 2 and stands at 751 versus 498 a year ago. Along with an increase to the number of active oil rigs, US crude oil production continues to climb a weekly basis, placing further pressure on prices. It has risen by more than 15 percent since mid-2016 to 9.78 million barrels per day (bpd), the highest level since the early 1970s and close to the output of top producers Russia and Saudi Arabia. Higher production in November reflected oil production platforms returning to operation after being shut in response to Hurricane Nate.
And finally, China’s crude oil imports rose to 37.04 million tonnes in November, or 9.01 million bpd, the second highest on record. It is expected that China’s crude oil imports will continue to rise, as output declines from several of its biggest onshore fields. As a result, China becomes more reliant on crude oil imports with import dependency set to increase from a record 68.0 percent in 2017 to nearly 80 percent by 2021.
In general, global fuel market feels some lack of optimism caused by the results of OPEC+ actions to curb oil production. The focus is shifting again to the ratio of the fundamentals: supply and demand. We expect, however, that bunker fuel prices still maintain the potential for growth 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)