The Bunker Review is contributed by Marine Bunker Exchange
Brent crude oil, the global benchmark, has lost more than 28 percent since June on slow demand and abundant supply. Losses have accelerated in October on signals that that OPEC has no plan to cut output. - Oil fell more than $1 a barrel on Thursday to four year low below $83 a barrel as growing concern over the global economy.
Brent crude for November delivery had dropped to $82.78 down $1.00 the lowest since November 2010. Brent has fallen from a high of $115.71 a barrel reached in June, 2014.The U.S. crude WTI fell to $80.47 a barrel a drop of $1.31 by 1456 CET. The market is still bearish, despite a calculated floor around $80 a barrel for Brent and $75 a barrel for WTI, which slumped to almost $80 a barrel, trading near its lowest in more than two years amid speculations rising U.S. supplies are exacerbating a global glut. These floors might come into danger if we don’t have any signal from OPEC cutting production any time soon.
The $30 fall since June has led to an intense discussion whether prices could be in for new norm. The reasons for the oversupply of crude oil, which is the cause of the recent price drop, are the shale oil boom in the U.S., the oil sand in Canada and Petrobras deep water drilling in the South Atlantic, but the cost for each barrel of crude oil extracted from the newly developed oil resources are expensive, between $70 – 90 a barrel. These extraction costs in comparison with the production cost in the Middle East, around $15-20 a barrel. Knowing this, it is understandable that the producers of oil in the Middle East will wait as long as possible to reduce the output, in order to guard their own market share. Sooner or later the high cost production of crude will suffer and reduce output capacity, and create a shortage and prices will start to go up again. We see rather a deep slump than a permanent shift of a new norm for oil prices.
Global economic worries deepened this week after China’s consumer inflation fell to near five-year lows and U.S. producer prices declined for the first time in more than a year.
Venezuela has called for an emergency meeting of OPEC ahead of its next scheduled gathering on Nov. 27.
We expect that bunker prices will stabilize around the current level but could also continue downward. When the ball started rolling, it is difficult to stop.
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)