The Bunker Review is contributed by Marine Bunker Exchange
World fuel indexes have continued general downward trend during the week. The Organization of the Petroleum Exporting Countries and other producers including Russia are trying to restrict output to drain stockpiles that are close to record highs in many parts of the world. But U.S. crude production is rising fast as new technology helps to extract shale oil, making the United States more self-sufficient in energy. The indexes have received momentary support from the diplomatic conflict between Qatar and the rest members of the Gulf Cooperation Council (GCC) as well as from two terrorist attacks in Iran.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) has dropped in the period of Jun. 01 – Jun. 08 following the downward trend on global oil market:
380 HSFO - down from 288.14 to 282.07 USD/MT (-6.07)
180 HSFO - down from 327.21 to 321.43 USD/MT (-5.78)
MGO - down from 496.50 to 481.36 USD/MT (-15.14)
On June 05 oil indexes slightly advanced after a Saudi-led alliance cut diplomatic ties with Qatar and moved to close off access to the Gulf country, raising tensions in the world’s biggest oil-producing region. Saudi Arabia, Bahrain, the United Arab Emirates, Egypt, Yemen, Libya and Maldives accused Qatar of supporting extremism and undermining regional stability. In a joint statement the countries announced they would halt air, land and sea travel to and from Qatar, with Riyadh going so far as to ban Qatari aircraft from using Saudi air space as of June 6. It’s unclear what the impact of this move will be. While Qatar is one of the world’s leading exporters of natural gas, its oil output is small and it has already agreed to adhere to the OPEC production cut extension. However, if tensions between the GCC members continue, it could have an impact on the region’s stability and the security of the Straits of Hormuz, through which thirty percent of the world’s tradeable oil passes each day.
Tensions in the Middle East after Saudi Arabia, Egypt, the UAE, and Bahrain dip-lomatic actions against Qatar were aggravated on Jun. 07 by two terrorist attacks on the Iranian parliament and the mausoleum of Ayatollah Khomeini in Tehran left 12 dead and 40 injured. Islamic State took responsibility for the attacks.
OPEC’s output in May jumped 315,000 barrels a day from a month earlier to 32.21 million led by gains from Libya and Nigeria, countries that are exempt from the deal to cut output. Libya’s output in May soared 210,000 barrels a day to 760,000 while Nigeria’s gained 100,000 to 1.7 million. Meantime, Libya’s crude exports in May rose to the highest level in 31 months on increasing flows from Sharara, while Nigeria hopes to ship an additional 200,000 barrels a day from the Forcados terminal by December. Counting Nigeria and Libya, total OPEC oil output remained about 450,000 barrels a day above the target set out in the Nov. 30 production agreement. It means that compliance was about 66 percent in May compared with 90 percent in April. The recent increase in Libyan and Nigerian output may undercut OPEC’s strategy to re-balance the market and prop up prices.
Meantime, Saudi Arabia suggests that OPEC and its partners might consider deepening the crude oil production cuts they agreed to extend to the end of March 2018. However it added that it is too early to discuss deeper cuts now as the current rate of cuts is working and the effects will become apparent by the end of next month.
Fuel prices were supported by signs that OPEC+ efforts are starting to impact actual supplies. OPEC tanker supplies to customers around the world were at 24.3 million bpd in May, down from 24.8 million bpd in April and compared with an average of 25.1 million bpd in the first five months of the year.
U.S. President Donald Trump announced on Jun. 01 he would withdraw the United States from the Paris 2015 global agreement to fight climate change. As per Trump, the Paris accord would undermine the U.S. economy, cost U.S. jobs, weaken American national sovereignty and put the country at a permanent disadvantage to the other countries of the world. One of the results of this decision could be rising drilling activity in the U.S.
At the moment growing US output has already partly undermined OPEC effort to cut supply and momentary political tension in the Middle East. Crude output in the United States, which is not participating in the cuts, has jumped almost 10 percent since mid-2016 to 9.318 million bpd, close to levels of top producers Saudi Arabia and Russia. The rise in U.S. production has been driven by a record 20th straight weekly climb in oil drilling, with the rig count climbing by 11 in the week to June 2, to 733, the most since April 2015.
U.S. imports averaged 8.3 million barrels daily, up by 356,000 bpd from the pre-vious week. However, some declines are expected in the coming weeks after Saudi Arabia announced its plans to cut shipments to the U.S.
All in all prices are still slipping down as the market remains skeptical of OPEC’s and its partners’ ability to restore balance in demand and supply while U.S. producers continue to ramp up production. We expect global bunker prices will continue slight downward evolution 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)