The Bunker Review is contributed by Marine Bunker Exchange
World fuel indexes were rather volatile during the week while prices continued rising. Mean-time, having rallied to 16-month-highs on the back of OPEC’s deal to cut oil supply, indexes dipped a bit in the middle of the week after figures showed that November output at both OPEC and Russia had reached record highs in November. OPEC’s November production jumped by 370,000 barrels per day (bpd) from October to stand at 34.19 million bpd. Within OPEC, output rose mainly in Angola, Nigeria, Libya, Iran, and Iraq.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) has demonstrated upward evolution as well in the period of period of Dec.01 – Dec.08:
380 HSFO - up from 285.86 to 297.14 USD/MT (+11,28)
180 HSFO - up from 326.07 to 334.50 USD/MT (+8,43)
MGO - up from 481.71 to 499.50 USD/MT (+17,79)
OPEC successfully reached a deal to cut production, which suggests total OPEC production drop to 32.5 million bpd. The largest cuts are to be done by Saudi Arabia (486,000 bpd), the UEA (139,000 bpd) and Iraq (210,000 bpd). Iraq and Iran, initially resistant to major cuts, got away with only minor changes to their overall production.
At the same time OPEC increased production to 34.16 million barrels a day last month with Angola, Libya and Nigeria leading the gains. The last two aren’t required to reduce supply in last week’s agreement, meaning other members would have to make deeper cuts if the group is to reach its output goal. Output also climbed in Iraq due to record exports, lifting supply to 4.62 million bpd in November.
Saudi Arabia for its part is cutting half a million bpd, dropping its daily production from 10.5 to 10 million, a significant immediate drop. Concerns over the economic impact of low prices were the main reason for the Saudi change in policy back in September, when a deal suddenly became more likely. The state deficit continued to climb even as oil cut deal was being finalized.
Besides, one of the factors keeping pressure on fuel prices is doubt about whether OPEC and Russia will continue to curb supply when the deal ends in six months. Non-OPEC producers are expected to agree to add an output cut of 600,000 barrels per day (bpd) at a meeting in Vienna on Dec. 10. OPEC has invited 14 other crude producers, who together pumped about 18.8 million barrels a day of oil last year (equivalent to 20 percent of global supply), to Vienna talks.
Russia on Dec.02 reported average daily oil production of 11.21 million bpd for November - its highest in almost 30 years. While Russia has agreed to cut its output by 300,000 bpd in early 2017, it said it would do so against November levels. That means that even after a reduction, its output would remain higher than it was at the peak of the oil glut in the first half of 2016. Besides, it is expected that output cuts will be spread proportionally between the country’s producers, who have said they support the move. No oil company has so far explained how they will implement the cuts. State-controlled Rosneft, the country’s largest producer, is likely to bear most of the burden.
After Russia, Mexico is the largest producer invited to Vienna. While the nation’s output is expected to fall by about 150,000 barrels a day next year to 1.94 million due to the natural decline in production at aging fields, the country doesn’t plan any further cuts.
In the Middle East there are also signs that production will rise before it gets cut. Saudi Arabia and Kuwait are expected to agree this month to resume oil production, with a potential of 300,000 barrels in daily output, from jointly operated oilfields which were shut down between 2014 and 2015 for environmental and technical difficulties.
Libyan National Army (LNA) forces have taken control over two of the four export terminals in the Oil Crescent. It was reported that at the moment only the port of Zeutina remains con-tested; the rest of them: Es Sider, Ras Lanuf, and Al-Brega, are under control of the LNA. Libya currently produces around 600,000 barrels of crude daily and has plans to raise this to 900,000 bpd (due its exemption from the OPEC production cut deal). Meanwhile, the political situation in the country remains extremely volatile, with clashes erupting constantly between the LNA and other armed groups.
Another critical factor now is U.S. shale producers, and the market will be watching to see how quickly and in what size they will respond. For the moment the EIA raised its domestic output forecast for 2017 to 8.78 million barrels a day from 8.73 million projected in November. It also increased its 2016 forecast to 8.86 million barrels a day from 8.84 million.
Early signs of stabilization in the shale patch occurred when oil prices were below $50 per barrel. But a strong rebound in shale drilling could in return doom the price rally. Goldman Sachs predicts that oil prices above $55 per barrel will bring back some 800,000 barrels per day in shale production compared to a scenario in which oil prices traded at just $45 per barrel.
Key event of the week: meeting in Vienna on Dec. 10 between OPEC and non-OPEC producers will show how strong the intention to stabilize global fuel market is. We hope the parties may reach an accord, and so bunker prices will receive another chance to rise 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)