MABUX: Bunker market this morning, Jan 27
The Bunker Review was contributed by Marine Bunker Exchange (MABUX)
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO (Gasoil) in the main world hubs demonstrated irregular changes on January 24:
380 HSFO: USD/MT – 380.26 (+0.08)
VLSFO: USD/MT – 609.00 (-6.00)
MGO: USD/MT – 656.06 (-3.55)
Meantime, world oil indexes fell on Jan.24 as concerns that a coronavirus will spread farther in China, the world’s second-largest oil consumer, curbing travel and oil demand.
Brent for March settlement decreased by $1.35 to $60.69 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for March fell by $1.40 to $54.19 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $6.50 to WTI. Gasoil for February delivery declined by $9.50.
Today morning oil indexes continue to decline as the rising number of cases of the new coronavirus in China and city lockdowns there deepened concerns over oil demand.
The virus that has killed 80 people and infected more than 2,7 has prompted the suspension of public transport in 10 Chinese cities, while cases of infection have been found in several other Asian countries, France and the United States. Health authorities fear the infection rate could accelerate over the Lunar New Year holiday, when millions of Chinese travel. Experience with previous outbreaks such as SARS in 2003 and MERS from 2012 suggests the economic impact of an epidemic is relatively small. However, the market remains vulnerable to any disappointing news about consumption.
The Economist Intelligence Unit said in a report Jan.23 that the virus could shave between 0.5 to 1 percentage point off China’s gross domestic product growth this year against a baseline forecast of 5.9 per cent. On the energy front, the outbreak has already downed demand for 200,000 barrels of refined oil products. In China’s Hubei province, where the disease was first noted, the shutdown of transportation has probably eliminated about 50,000 to 70,000 barrels a day of demand. Separately, Goldman Sachs said that it anticipated a 260,000-barrels-per-day negative shock to global oil demand on average, including a 170,000-bpd loss of jet fuel demand, from the 2019-nCoV. Its analysis was based on comparison with the 2003 SARS health epidemic, which shook global markets, including oil.
The latest U.S. rig count data, an indication of future supply from the world’s largest crude producer, did little to support oil prices as energy firms added oil rigs for a second consecutive week. Companies added three oil rigs in the week to Jan. 24, bringing the total count to 676. In the same week a year ago, there were 862 active rigs.
Also the U.S. government’s latest supply report on Jan.23 showed gasoline stockpiles grew for an 11th consecutive week to a record high. At the same time, U.S. oil production from tight formations increased in 2019, accounting for 64% of total U.S. crude oil production. This share grew because of the increasing productivity of new wells that were brought online during 2019. The growing initial production rates have helped oil production from tight formations to increase despite the slowdowns in drilling activity when oil prices fell between 2015 and 2016. Since 2017, recovering oil prices and more efficient production from new wells have helped producers cover costs of drilling, production, and the development of new technologies.
According to OPEC figures, oil inventories in the wider industrialized world are above the five-year average, which analysts say is limiting the impact of supply losses. The prospect of further steps by OPEC+, could offer support going forward. OPEC+ has been mostly limiting supply since 2017 and on Jan. 1 deepened a cut in output. Moreover, OPEC members are discussing a potential extension of the oil production cuts through the end of 2020. Talks are at early stages, but there is an understanding that after March, the cuts should be extended until the end of the year.
A blockade of major Libyan oil ports is damaging the economy and must be quickly resolved, the Tripoli-based central bank governor told on Jan.24, adding that Libya could run a budget deficit in 2020 as a result. Libya's internationally recognized prime minister Fayez al-Serraj has warned of catastrophe if the week-long blockade by eastern-based commander Khalifa Haftar's forces, which has cut oil output to almost zero, is not lifted. Previously, oil production was 1.2 million barrels a day.
U.S. President Donald Trump on Friday signed a proclamation increasing tariffs on derivative steel products by an additional 25 percent and boosting duties on derivative aluminum products by an additional 10 percent. He said Argentina, Australia, Brazil, Canada, Mexico and South Korea are exempt from the additional tariffs on derivative steel products, and Argentina, Australia, Canada and Mexico are exempt from the added duties on derivative aluminum articles.
Trump has imposed tariffs on imported steel and aluminum to help boost U.S. production, which he says is a national security issue.
We expect bunker prices will continue to fall: 5-7 USD down for IFO, 7-9 USD down for MGO.