Bunker prices may continue to edge up next week
The Bunker Review is contributed by Marine Bunker Exchange
World fuel indexes continued upward movement during the week supported by the speculations that oil prices may have bottomed out with Saudi Arabia and some other producers including Russia planning an oil output freeze at January highs. However, concerns over slowing demand, an ongoing global production and storage overhang capped any potential for bigger price gains so far.
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 Mar. 04 – 10 showed firm upward changes:
380 HSFO - up from 145,36 to 164,36 USD/MT (+19,00)
180 HSFO - up from 190,14 to 209.00 USD/MT (+18,86)
MGO - up from 373,86 to 398.86 USD/MT (+25,00)
There are lots of speculations on the market that key members of OPEC intend to meet with other producers in Russia this month to discuss freezing output. At pre-sent the information was a bit more clarified: a meeting may be held in Russia, Doha or Vienna in the March 20 to April 1 period. Russia confirmed its readiness to take part in the freeze talks, but the time and date of the meeting is still being discussed. It was not also specified whether Iran would attend the planned discussions. Meantime, Ecuador’s foreign ministry said Latin American producers will meet on Mar. 11 to discuss oil prices.
However, oil is still down about 6 percent this year on speculation a global glut will be prolonged amid brimming U.S. stockpiles and the outlook for increased exports from Iran after the removal of sanctions.
The United Arab Emirates foresees a correction in crude prices by the end of the year. It is expected markets are poised to re-balance as many oil producers outside the Organization of Petroleum Exporting Countries lose money at current prices. There is declining output at fields that need higher prices to break even points toward a more stable market.
Saudi Arabia's decision to raise oil prices to its main customers in Asia could be considered as just another sign that crude markets are in the process to recovery. Kingdom lifted the official selling price of its benchmark Arab Light crude by 25 cents a barrel for cargoes loading in April. As per Saudi Arabia, it was done to adjust prices based on demand from refiners and changes in the value of oil products. However it is still unclear whether demand for crude really is strong enough to support Saudi decision to start normalizing its prices.
Iran’s return to global oil markets did not confirm the ambitious export figures declared in the beginning of the year. Six weeks after Iran resumed full scale oil production, the country is shipping barely a third of the extra 500,000 barrels a day it had promised to supply within weeks of sanctions being lifted. One of the reasons could be that Iran is facing short-term obstacles in regaining market share lost to other OPEC members, and in restoring production to pre-sanctions levels. Besides, the legal and regulatory framework is an obstacle. There are also some evidences that banks have been refusing to process payments for European refiners seeking to buy cargoes of Iranian crude. To avoid that the National Iranian Oil Co. has offered to swap crude for gasoline to get deals done. Before the embargo Europe imported on average about 400,000 barrels a day of oil from Iran.
The United States government decreased its forecast for crude oil production in 2017. In short-term energy outlook it is predicted that 2017 oil production would fall by 480,000 barrels a day to 8.19 million barrels, a big change from last month’s forecast of a decline of 230,000 barrels a day. The decline forecast for 2016 also increased, but not by much: a decline of 760,000 barrels a day from 740,000 barrels. Since mid-2014, global oil benchmark prices have dropped more than 70 percent. Growth in demand was dropping too: forecast cut growth by 80,000 bpd versus 110,000 barrels previously.
At the moment U.S. drillers cut the number of active rigs to the least in more than six years amid a global glut. According to Baker Hughes Inc., rigs targeting oil fell by 8 to 392, declining for an 11th week to the lowest level since December 2009.
Also preventing a funDamental shift towards higher prices is a concern over faltering demand in China, where the economy is growing at its slowest pace. China's February trade data was far worse than it had expected. Although China imported record crude volumes of 8.04 million barrels per day (bpd) in February, this figure may fall as China plans to decrease buys for its strategic reserves. At the same time oil product exports slid a second month to 2.99 million tons, the lowest since May.
At the same time China took advantage of the oil price collapse last year to build up oil reserves and inbound shipments may rise this year after independent refiners were granted import licenses. Meanwhile, the government’s decision not to cut retail fuel prices when oil falls below $40 a barrel has made domestic sales of oil products more profitable compared with exports.
As a resume, there is still rather high level of uncertainty on the world fuel market while speculations on possible output freeze agreement may render some support to fuel indexes in a short-term outlook. We admit bunker prices may continue slight upward 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)
