The Bunker Review is contributed by Marine Bunker Exchange
Oil prices are now near 2003 lows on oversupply. Oil Futures have hit their lowest levels since 2003 this week as investors worry that a glut of crude is combining with slowing demand due to economic weakness especially in China.
The oil market is still on its way downward. When will the downward trend stop? - When the shale oil producers run out of steam. The oil price level today, which is hurting badly the shale oil drillers in the U.S., but oil price will continue downward, until the a balance has been reached between demand and supply. - The reduction of crude oil that will lead to balance will start from the U.S. when enough shale oil drillers’ gone bankrupt or put their wells on hold.
We must not forget the shale oil boom in the U.S. was the start of the oversupply problem. The traditional oil suppliers such as OPEC, Russia and other non-OPEC countries, kept their production level and the oversupply production began in the U.S.
A likely scenario is that the shale oil producers in the U.S. will reduce their production because of high cost, and so will other high cost producers elsewhere on the globe also act, and eventually a balance will be reached.
But when will balance be reached? MABUX believes toward the end of the 2016. After balance reached a steady price increase will follow.
Those oil companies with high cost production will not return within foreseeable future since they have run out of money and new investors will be hard to get knowing what happened last time, when the oil market was drowned in oil.
Expect bunker market to continue its general downward trend, but do not think we are too far from the bottom. Not lower than $25 a barrel is our estimate. Also a drop down to $20 a barrel is on the table.
Iran’s return to the oil market this month is of course bad news. After sanctions had been lifted they are free to produce as much as they like. But the startup will probably take much longer time than what they are telling the market. In the meantime a number of high cost suppliers have ceased to exist, which will limit the damage.
Finally the Oil Futures were trading at GMT 15.32 Brent $28.14 (+0.26) and WTI $28.54 (+0.19). Spread between Brent and WTI – 0.4.
We expect bunker prices to hover around $25 – 28 a barrel, but still the general downward tendency.
* 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)