MABUX: Bunker prices to remain mixed amid geopolitical concerns
The Bunker Review is contributed to IAA PortNews by MABUX
Geopolitical factors still predominate over fundamentals on the world fuel market, the market specialist Marine Bunker Exchange said.
During the week fuel indexes have been falling as worries about supply disruptions from Iraq eased and on the prospect of more supplies from Libya. Meanwhile world fuel prices have rapidly erased a geopolitical risk premium and selling has accelerated in recent days as traders started to shift their focus from violence in the Middle East to weak global fundamentals.
The main geopolitical factors on world fuel market are still Iraq and Libia. In Iraq politicians named a moderate Sunni Islamist as speaker of parliament on Jul.14. This can be considered as a first step toward a power-sharing government and a potential to put an end to the Islamist revolt that drove oil and fuel prices to nine-month highs in June. At present conflict still remains concentrated in the north, where militants from the Islamic State are keeping the control over the city of Mosul. The fighting hasn’t spread to the south, the main area for more than three-quarters of oil output.
Libya in turn is preparing to resume shipments from the Es Sider and Ras Lanuf terminals that were handed over last week by rebels seeking self-rule in the nation’s east. The country’s daily production rose to 588,000 barrels from 470,000 on July 13. At the same time the deteriorating security situation in Libya (fighting between rival militias over Tripoli International Airport and battles in the eastern city of Benghazi) has raised questions about whether the country can soon increase crude exports.
"Ukrainian" factor has lost its driver-component on the fuel market recently although armed confrontation in the south-east of the country continues, and the prospects for resolving the conflict remain uncertain. The Obama administration, acting jointly with the European Union, imposed sanctions on Russian banks, energy companies and defense firms in the latest attempt to punish the country over Ukraine. The moves were the latest response to what U.S. and European leaders say is Putin’s refusal to end support for Ukrainian rebels who have been battling government forces in the east. Russia has denied previous allegations that it’s responsible for fomenting turmoil in Ukraine. We still consider that Ukraine retains driving potential on the market so far which may push fuel prices up if the confrontation escalates further on.
In the U.S. crude supplies dropped 7.53 million barrels to 375 million last week while inventories at Cushing, Oklahoma, the delivery point for WTI traded in New York, fell by 650,000 barrels to 20.3 million, the least since November 2008. Meanwhile, Federal Reserve Chair Janet Yellen said the Fed hasn’t met its mandate to achieve full employment and stable prices while affirming that a high degree of monetary policy accommodation remains appropriate. The remarks strengthened the value of the U.S. dollar, also helped to push fuel prices lower.
At the same time fuel indexes were supported by better-than-expected economic data from China. Government data showed that country's economy grew 7.5 percent between April and June from a year ago, slightly above expectations and up from 7.4 percent in the first quarter. China's implied oil demand rose 2.6 percent compared with a year ago to 10.2 million barrels per day (bpd) in June (the highest since January 2013).
And finally, the market is also keeping an eye on talks in Vienna between Iran and the six world powers over Tehran's nuclear program. Iran's oil supplies have been restricted by sanctions for several years, but an agreement among negotiators could lead to a softening, or lifting, of those limits. Negotiators have set a July 20 deadline for a deal but diplomats say the two sides are deeply divided and assume the talks will be given another six months.
Taking into consideration that geopolitical factors still predominate over fundamentals on the world fuel market, we expect bunker prices to move irregular next week.
All prices stated in USD / metric tone
All time high Brent = $147.50 (July 11, 2008)
All time high Light crude (WTI) = $147.27 (July 11, 2008)