Bunker prices near term trend remains uncertain, expert says
The Bunker Review is contributed by Marine Bunker Exchange
MABUX: "Any firm trend in world bunker prices is still open to question".
World fuel indexes did not have any firm trend during the week. The factor sup-ported the market was increasing talk among the participants that oil prices may have bottomed out with Saudi Arabia and some other producers including Russia planning an oil output freeze at January highs. The International Energy Agency predicts the global oil market is expected to begin rebalancing in 2017 as US out-put is set to decline under pressure from low oil prices.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) in the period Feb. 26 - Mar.03 showed slight upward changes:
380 HSFO - up from 141,14 to 147,07 USD/MT (+5,93)
180 HSFO - up from 187,50 to 190.21 USD/MT (+2,71)
MGO - up from 360,50 to 370.86 USD/MT (+10,36)
World fuel indexes demonstrated some signs to turn into upward trend supporting by speculation that some producers will complete an accord to freeze output. Russia said the oil output freeze would need to last a minimum of 12 months to support prices. As per Russia, cuts could be more effective, but would be difficult. Russia considers that if no agreement is found and those who have the ability to increase production continue to increase it, crude prices won’t recover for long.
As a sign of a good will, Russia’s top oil producers met with President Vladimir Putin on Mar.01 to pledge their support for a plan to freeze output at January levels. The idea was to fix Russia's 2016 production level at that of January, which was a post-Soviet record of 10.80 million barrels per day on average (Russian oil output stood at 10.88 million barrels per day in February). However, disappointment that there was no output cut, and scepticism that such a freeze could be agreed, has contributed to recent market volatility.
Besides, Russia’s manufacturing industry deteriorated more than forecast in February as new export orders declined caused by currency weakness and cheap oil. The Purchasing Manager’s Index fell for a third month, dropping to 49.3 from 49.8 in January.
As for OPEC, forecast says cartel crude production slipped in February by 79,000 barrels to 33.06 million a day. Nigeria and Iraq led declines. Nigeria’s production fell 139,000 barrels a day to 1.889 million: the output is volatile because of political unrest and theft in the Niger River delta, the main oil-producing region. Iraqi production dropped by 125,000 barrels a day to 4.385 million this month (it was pumped 4.51 million barrels a day in January).
Iran remains the main obstacle to a global output freeze. Iranian output rose by 140,000 barrels a day to 3 million, the most since July 2012. The Islamic republic is seeking to regain market share after sanctions were removed last month upon completion of an agreement limiting its nuclear program.
In the U.S. crude inventories rose by 10.37 million to about 518 million barrels in the week ended Feb. 26. That’s the highest level in weekly data going back to 1982. Stockpiles at Cushing, Oklahoma, the delivery point for WTI and the biggest U.S. oil-storage hub, also increased by 1.19 million barrels last week to 66.3 million barrels, the highest weekly level since data starting in 2004. U.S. refineries used 88.3 percent of their capacity last week, up from 87.3 percent the previous week. Meanwhile, rigs targeting oil in the U.S. fell by another 13 to 400, after more than 100 were idled since the start of the year. It marks the 10th straight week of declines in the number of working rigs.
World fuel prices were underpinned by speculation that monetary stimulus could support economic growth in China. The People’s Bank of China cut the amount of cash the nation’s lenders must lock away. The move marked the first time in four months that the central bank has used one of its traditional monetary-easing tools, despite mounting signs of a weaker economy.
The global oversupply on the world market caused problems in the biggest world hubs. The queue of ships waiting outside Europe’s biggest port and oil-trading hub of Rotterdam has grown to the longest in seven years: as many as 50 oil tankers - because storage sites are almost full. Besides, traders are taking advantage of a market contango by buying oil cheap, storing it and selling the commodity later. On Feb. 19 crude oil in storage tanks in Rotterdam stood at 51.3 million, the highest for the time of year in data starting in 2013.
We expect further trend on the world fuel market to be greatly depended on the progress of freezing oil production deal as well as on the situation with oil production in the U.S. Bunker prices may have short spikes while any firm direction is still open to question.
* 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)