The Bunker Review is contributed by Marine Bunker Exchange
Oil traded near multi-month lows on Thursday with Brent under $50 a barrel as a supply glut persisted despite record U.S. refinery runs, and little sign of any reduction in production.
Brent crude futures were down 30 cents at $49.29 a barrel after dipping to $49.02 on Wednesday, the lowest since Jan. 30. U.S. crude was down 46 cents at $44.69 a barrel at 1052 GMT, just off an intraday low of $44.55.
The crude prices are likely to continue downward but at a slower speed to $45 for the Brent and $40 for the WTI. Will this extreme low price level be the bottom? – Nobody knows, of course, but by that time reaching such a low price level the big three, OPEC,U.S. and Russia must act one way or the other. The levels were we are now and lower are hurting the industry involved in renewable energy.
Brent crude oil and WTI are both below the critical level of $50 for Brent and $45 for WTI. Although U.S. crude oil inventories fell by more than expected last week, gasoline stocks unexpectedly rose, which is normally considered to be a sign that the driving season could soon be over. Refineries will use less crude oil and the overcapacity of crude will worsen.
The huge overcapacity and under-demand persists and there are no signs that the situation will change for higher oil prices and there by an increase for the bunker prices. The geopolitical situations around the world are not positive. Not even China can help on the demand side. The minute the sanctions are lifted against Iran, the country will increase its export by 500.000 barrels per day shortly. Saudi Arabia is right now producing at all-time high and Russia is doing the same. The shale oil production in the U.S., which was expensive in early days, today the method of extraction shale oil has been refined and the production cost been considerable lower, which means the producers in the U.S. can withstand much lower yield per barrel and still make money.
The reason for the overproduction is said to be in the name of protecting their market share. It could be but perhaps some countries have been used to a higher standard of living and now it is difficult to lower the standard. Politically it can be suicide for some politicians.
It is often said, the overproduction will soon be in balance with the world demand and oil prices will soon increase and reach levels around $60 -70 per barrel by the end of the year. – Wish full thinking! It is naive to believe in that with so much crude oil around.
Bunker price outlook for the coming week is a continuation of the downward trend, which we have experienced for a long time now but at a slower pace than before. The bottom might not be too far away.
*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)