Bunker prices outlook for next week uncertain, expert says
The Bunker Review is contributed by Marine Bunker Exchange
World fuel indexes have been extremely volatile this week on speculation a global glut will persist amid the outlook for increased exports from Iran after the removal of sanctions, no any real results of Venezuelan Oil Minister Eulogio Del Pino’s tour to major oil countries and U.S. crude supplies.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) slightly declined in the period of Feb.04-Feb.11:
380 HSFO - down from 146,79 to 137.36 USD/MT (-9,43)
180 HSFO - down from 176,64 to 170.57 USD/MT (-6,07)
MGO - down from 366,00 to 354.21 USD/MT (-11,79)
The International Energy Agency predicts the global oil surplus will be bigger than previously estimated in the first half, increasing the risk of further price losses. One of the main reasons is that OPEC members Iran and Iraq bolster production while demand growth slows. So the supply may exceed consumption by an average of 1.75 million barrels a day compared with an estimate of 1.5 million last month. Iran expanded production by 80,000 barrels a day to 2.99 million in January following the removal of international sanctions. Iraq increased output by 50,000 barrels a day to 4.35 million and could raise that further, while OPEC’s leader Saudi Arabia boosted production by 70,000 barrels a day to 10.21 million.
A meeting between OPEC producers Saudi Arabia and Venezuela on Feb.07 to discuss coordination on prices ended with no real agreement. As per Venezuela, six members of the Organization of Petroleum Exporting Countries and two non-OPEC producers would be open to attending an extraordinary meeting if one is called. Speculation about possible talks between the Organization of the Petroleum Exporting Countries and other oil producers to cut output increased volatility in the fuel market, but finally was overshadowed by skepticism that Venezuela's effort to support prices would succeed.
Energy firms continue to cut spending due to the collapse in crude prices. U.S. drillers removed 31 oil rigs in the week ended Feb. 5, the biggest cut since April last year, bringing the total rig count down to 467. In 2015, drillers cut on average 18 rigs per week for a total of 963 oil rigs for the year. U.S. crude oil production averaged about 9.4 million bpd in 2015 and was forecast to average 8.7 million bpd in 2016 and 8.5 million bpd in 2017.
U.S. crude stockpiles fell 754,000 barrels last week, compared with a forecast of 3.5 – 3.9 million barrel gain. On the contrary crude stockpiles at Cushing rose by 523,000 barrels to 64.7 million, the most in data going back to 2004. Meanwhile, U.S. shale fields continue to pump more oil and gas than previously estimated. The seven major shale formations in the U.S. are going to produce 5.02 million barrels a day in February, up from last month’s forecast of 4.83 million a day.
The strength of the U.S. dollar was a very large driver of the fuel prices this week. The Federal Reserve’s plans to hike interest rates, along with concerns over the stability of the global economy, has driven up the strength of the dollar. Even if the Fed pulls back from its planned rate hikes, the dollar will maintain its strength because of its attractiveness as a safe-haven.
China might see its output dip by 3 to 5 percent in 2016, down from a record high of 4.3 million barrels per day last year. That would be the first decline in seven years and the biggest drop in records going back to 1990. The country announced last month fuel prices won’t be cut in line with crude as long as it trades below $40 a barrel. The National Development and Reform Commission said the floor is designed in part to shield domestic oil producers from the global price collapse.
Iran's role in any potential deal to rein in production is critical, as it appears determined to boost production and gain market share after the lifting of sanctions. As one of the first steps, Iran will start sending 300,000 barrels a day of crude to Europe, 54 percent of the total it shipped before the sanctions. French Total SA has agreed to buy about 160,000 barrels a day starting on Feb. 16. Spanish refiner Compania Espanola de Petroleos and Russia’s Lukoil have also provisionally booked cargoes of Iranian crude to sail from Kharg Island to European ports in the next two weeks. Europe, excluding Turkey, imported 550,000 barrels a day of Iranian crude before the sanctions.
All in all, the funDamentals haven't shifted. The market remains in surplus, and it is very difficult for fuel indexes to sustain any gains. We expect bunker prices will continue slight downward trend next week.
*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)