The Bunker Review is contributed by Marine Bunker Exchange
The slight decline was the main trend on world fuel market during the week, although global oil supply and demand funDamentals have not had any drastic changes. MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) from Oct. 08 till Oct.14 followed the general downward trend of fuel indexes, and average bunker prices continued to fall:
380 HSFO - down from 235,00 to 226,21 USD/MT (-8,79)
180 HSFO - down from 260,64 to 254,50 USD/MT (-6,14)
MGO - down from 524,57 to 512.00 USD/MT (-12,57)
The International Energy Agency predicts global oil supply glut will persist through 2016 as demand growth slows from a five-year high, key OPEC members maintain near-record output and Iranian exports are poised to recover with the lifting of sanctions, It is expected global oil demand growth will revert to long-term trend levels of 1.2 million barrels a day in 2016, down from 1.8 million this year, amid a softer economic outlook for oil producers such as Canada, Brazil, Venezuela, Russia and Saudi Arabia. Meanwhile, the trend of reducing investment in the oil industry (by almost 20 percent this year from $650 billion in 2014) could result in production shortfalls.
Crude oil stocks are still the funDamental driver of oil prices as U.S. inventories are more than 100 million barrels above the 5-year average and more than 90 million barrels above the 5-year maximum.
Baker Hughes Inc. said rigs targeting oil in the U.S. fell by 9 to 605, adding to the 61 sidelined in the previous five weeks and extending a five-year low. Market has interpreted this data as a sign low prices continued to keep drillers away from the well pad. At the same time U.S. crude output rose by 76,000 barrels a day to 9.2 million the week before, the biggest gain in nearly half a year. Production reached a four-decade high of 9.61 million in June.
Minutes released from the U.S. Federal Reserve last week showed there were worries about inflation even though Fed still thinks it can raise rates this year. The Fed's policymaking committee was also unsettled by signs of turmoil abroad but did not think this had changed the outlook for the U.S. economy.
The Organization of Petroleum Exporting Countries produced 31.57 million barrels a day last month (the most since 2012), while the production outside the cartel may fall by 130,000 barrels a day next year as the U.S. shale boom collapses. OPEC forecasts demand for its crude in 2016 to be 30.8 million barrels a day, revising its demand outlook upward by half a million barrels. As per OPEC, the gap in oil supply and demand is due to close in the third quarter of 2016.
At the same time comments made by some OPEC members this week provided support to fuel indexes. Secretary General Abdullah el-Badri said the cartel sees a more balanced oil market next year. As per Qatar, global oil prices have bottomed out, with signs of a recovery seen in 2016. Kuwait agreed there are indications that a lot of high-cost oil production is starting to get out of the market and this will help improve prices.
Amid signs OPEC keeps its strategy of defending market share unchanged, Venezuela is going to unveil a new strategy this month. It is expected that the proposal would reapply the old mechanism of progressive production cuts to control prices, with a "first floor" of $70 per barrel and a later target of $100 per barrel. Eight non-OPEC countries have been invited to an Oct. 21 oil meeting to be held in Vienna: Azerbaijan, Brazil, Colombia, Kazakhstan, Norway, Mexico, Oman and Russia.
Russia in turn said it was ready to meet with OPEC and non-OPEC producers to discuss the market, although there are some concerns that relations may suffer over the two sides' differing positions on Syrian President Bashar al-Assad's future.
Trade data from China was mixed: exports fell 1.1 percent from a year earlier in September in yuan-denominated terms while imports declined 17.7 percent. Meanwhile, China’s crude imports rose in September to 27.95 million metric tons from 26.59 million in August due to refilling of its reserves and refiners boosted processing. China has accumulated about 200 million barrels of crude in its re-serve so far and plans to have 500 million by the end of the decade.
The tension in the Middle East is escalating and the geopolitical premium is getting prices back into the market. Syrian troops and allied militia backed by Russian air strikes and cruise missiles attacked rebel forces. Russian officials have said they will not send ground troops to Syria and that the air campaign will be of just a few months' duration. But Russian more active involvement into the Syrian conflict may form new supportive factor for fuel prices.
Iranian factor could also swell the glut on global market if restrictions on its sales are removed. The country could boost output to 3.6 million barrels a day (from its current 2.9 million) in six months period and almost double the increase in oil inventories projected for next year. It is also predicted that the country may increase oil exports by 500,000 barrels a day within six months of the lifting of sanctions and then double that increase to 1 million barrels daily.
All in all global supply and demand for crude did not change much over the past few weeks. Market is still in oversupply. We expect bunker prices may have irregular fluctuations next week but general trend will be kept unchanged: moderate decline.
* 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)