MABUX: OPEC pushed bunker prices up
The Bunker Review is contributed by Marine Bunker Exchange
It was a week of great speculations, and bunker prices fluctuated and changed irregular. The market was in a waiting mood. All the speculations went around two possible scenarios that left very little variations in between: if OPEC reaches a deal, oil prices could be heading well over $50 per barrel. But if the negotiations fall apart, oil prices could be heading to $40 per barrel. Finally after weeks of rather tense negotiations, world fuel indexes jumped by the most in more than seven months after OPEC was said to agree on the first supply cuts in eight years in an effort to ease a record glut and stabilize global markets.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) was rather volatile but finally has demonstrated upward evolution (period of Nov.24 – Dec.01):
380 HSFO - up from 269.57 to 284.43 USD/MT (+14,86)
180 HSFO - up from 310.00 to 324.64 USD/MT (+14,64)
MGO - up from 472.57 to 481.71 USD/MT (+9,14)
OPEC has agreed to reduce collective production to 32.5 million barrels a day. Three biggest producers -- Saudi Arabia, Iraq and Iran -- resolved differences over sharing the burden of cuts.
Saudi Arabia will account for almost half of the agreed cuts, reducing output by nearly 0.5 mb/d, which will take overall production down close to 10.0 mb/d. Iran’s figures are a bit confusing, given that the numbers don’t add up on the agreement text that OPEC published. Iran wanted its output to climb to a pre-sanctions level of at least 4 mb/d, while Saudi Arabia insisted on a freeze at 3.7 mb/d. Algeria’s energy minister offered a middle ground – roughly 3.8 mb/d. Despite the discrepancy in the figures published by OPEC on Nov.30, it appears that Iran will be allowed to boost production by another 90,000 barrels per day to 3.8 mb/d, with both Iran and Saudi Arabia offering some concessions.
Iraq, OPEC’s second-largest producer, has also agreed to cut production by 210,000 barrels per day. The country previously pushed for special consideration, citing the urgency of its offensive against Islamic State.
Indonesia suspended its membership in OPEC due to its status as a net oil importer. It appears that Indonesia will not be part of the deal but its production volume of 722,000 barrels per day will be included in OPEC’s 32.5 mb/d target, which means its withdrawal will not affect the specifics of the agreement.
The pact is likely to include an additional 600,000 barrels a day of cuts from non-OPEC suppliers.
Russia, the biggest supplier outside the bloc OPEC, had previously said it was only prepared to freeze production at current near-record levels, but at the day of OPEC’s meeting made a statement that if there is an OPEC agreement that assigns individual cuts to members, then Russia is ready to participate, including possibly reducing output. It rendered additional support to the indexes.
As a matter of fact, the Organization of Petroleum Exporting Countries finally stopped a pump-at-will policy introduced in 2014 to resume its traditional role as price fixer. The shift - aimed at draining a crude glut that’s pushed down prices for two years - will help revive the tattered finances of oil-producing countries and reverberate in markets around the world. The six-month accord will need to be renewed at OPEC’s next official meeting in June.
The EIA reported decline in U.S. commercial crude oil inventories of less than a million barrels: stockpiles were down 884,000 barrels in the week to November 25. This brought the total to 488.1 million barrels, within the average for this time of year, though close to the upper limit. U.S. crude production increased by 9,000 barrels a day to 8.7 million barrels a day last week, the highest since June. Refineries operated at 89.8 percent of capacity, processing 16.3 million barrels of crude, and producing also 5.2 million barrels of distillate.
One of the “Joker” factors for the global fuel market at the moment is U.S. President-elect Donald Trump who has vowed to rip up the Iranian nuclear agreement and reimpose sanctions on Iran. It is unclear how effective it will be to make it unilaterally. Considering the size of the U.S. economy, threatening to close off access to the American market to anyone purchasing Iranian oil could be persuasive. That could potentially cut off some Iranian oil exports once again, which would have the effect of taking global supplies off the market, thus pushing up fuel prices.
Fuel indexes may also need to rally further before China’s producers may compensate a drop in output to the lowest in more than six years. Forecast predicted production in China will stabilize with prices around $50 a barrel and may not rebound until they are above $60. The country’s production during August dropped 9.9 percent from a year ago to 16.45 million tons (about 3.89 million barrels a day, the lowest since December 2009) as state-run companies shut fields too expensive to operate amid the worst price crash in a generation.
Growing Asian demand for West African crude is fueling a worldwide surge in shipping rates for the largest oil tankers. It is predicted that they may earn $31,000 a day in 2017. However the estimated rate is still more than 15 percent lower than anticipated in August. Benchmark earnings averaged about $40,000 a day so far this year, compared with about $68,000 a day in 2015. Demand for these ships normally rises in the fourth quarter as oil refineries increase the amount of crude they process. As a result it could set up additional supporting factor for bunker prices in coming weeks.
All in all, for now OPEC looks like a functioning cartel. If they follow through, this could balance the market in the first half of next year. We expect bunker prices will demonstrate steady 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)
