The Bunker Review is contributed by Marine Bunker Exchange
World fuel indexes turned into slight upward trend during the week. The key event was the OPEC+ Ministerial Monitoring Committee meeting in St Petersburg, Russia. Market had hoped for deeper cuts to compensate for new supplies, but the bloc failed to announce any fresh cuts. Current feelings in the market are largely linked to higher production volumes in Libya and Nigeria, combined with the threats by smaller OPEC countries, such as Ecuador and Qatar, to leave the deal.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) has followed the general trend of global oil market and rose slightly in the period of Jul. 20 – Jul. 27:
380 HSFO - up from 295.00 to 301.93 USD/MT (+6.93)
180 HSFO - up from 333.93 to 342.43 USD/MT (+8.50)
MGO - up from 493.29 to 502.43 USD/MT (+9.14)
Credit Suisse expects crude oil will not reach above $60 per barrel before 2020. The bank dropped its long-term growth forecast for West Texas Intermediate (WTI) by $5 a barrel to $57.50 by 2020. Brent will touch $60 that same year. The Credit Suisse team also pointed to slow oil demand in developing countries, which has made it difficult to draw down international inventories.
The OPEC+ monitoring committee, known as JMMC, met in the Russian city of St Petersburg on Jul.24. OPEC and its allies indicated they weren’t planning any big changes to their supply deal, even as oil prices remain below $50 a barrel amid growing skepticism that their output cuts are working. As per OPEC, global stocks has fallen by 90 million barrels, but are still about 250 million barrels above the five-year average for industrialized nations, which is the level OPEC and non-OPEC states are targeting with their output curbs. Meantime, global oil demand is expected to grow by about 1.4 million to 1.6 million bpd next year, similar to 2017 and so shall more than offset rising U.S. output.
Russia and Saudi Arabia face mounting pressure to prop up oil prices at the moment. Russia, which is heavily reliant on oil revenues, holds a presidential election next year. Saudi Arabia needs higher prices to balance its budget and support next year's planned listing of state oil firm Saudi Aramco.
Libya and Nigeria are still a big part of the problem. Both countries, granted an exemption last year from cutting because their output had already been reduced by internal strife, added 440,000 barrels a day of production in the last two months: the equivalent to about a third of the reductions implemented by fellow OPEC members. Nigeria is ready to cap or even reduce supply if it can maintain output of 1.8 million barrels a day. Libya isn’t planning to join any agreement to curb output until it reaches its target of 1.25 million barrels a day by December (that’s almost 50 percent above its average June production of 840,000 barrels a day).
So, as a result, the Ministerial Committee had agreed Nigeria would join the deal by cap-ping or even cutting its output from 1.8 million bpd, once it stabilizes at that level from 1.7 million bpd recently (there was no any timeframe specified for when this would happen). As for Libya, the committee did not back capping country’s output as its production was unlikely to exceed 1 million bpd in the near future.
However, according to IEA, compliance among OPEC members slipped in June to its lowest level—78 percent—since the start of the deal, as not only exempt Libya and Nigeria pumped more, but also Saudi Arabia. Although OPEC’s biggest producer stayed within the limits, it did not overcomply with its share of the cuts as much as it had done in previous months. In addition, Ecuador said earlier this month, that it would no longer comply with the deal because it needs funds to increase budget revenues.
The blockade of Qatar could persist for quite a long time. As per UAE statement, the Gulf States that have imposed sanctions are not looking for a quick fix. Despite of it, Qatar has still been able to import food and other necessities, while its exports of oil and gas have gone on uninterrupted. Moreover, the blockade by Saudi Arabia, the UAE, Bahrain and Egypt has not succeeded in isolating Qatar. In fact, Qatar has grown closer to Turkey and Iran, a development the Gulf States were hoping to avoid. However, the blockade of Qatar could push the Persian Gulf nation to pull out of OPEC’s cut agreement as well.
The EIA reported a decline in U.S. crude oil inventories by 7.2 million barrels for the week ending on July 21, the fourth consecutive week of a substantial drawdown. At the end of last month, the strong drawdown could be considered as a one-off de-cline that wouldn’t mean much if inventories increased in subsequent weeks. But four consecutive weeks of declines is starting to look like a real trend, providing stronger confidence that the fuel market is finally starting to tighten.
The number of active oil rigs in the United States fell last week by 1 rig - it's second loss in four weeks and its third loss this year. Besides total U.S. oil production decreased last week by 19,000 bpd to 9,410 million bpd. Despite of that U.S. production is still on the highest level in two years. It is also not far off from the all-time production record of just over 9.6 mb/d reached in the first half of 2015.
The increasing number of super oil tanker ships and big freight carriers, along with upcoming rules on sulfur used in marine vessel fuel, are expected to influence demand and pricing in bunker fuel and crude oil. Port authorities in the major world hubs are overseeing redesigns at their harbors and crane systems as much larger ships begin showing up. The authorities are also exploring options such as new methods to stack and distribute cargo containers, and to reduce some of the truck traffic through using more rail transport. As new international regulations (to be implemented and enforced starting in 2020) will limit sulfur used in marine vessels, refiners and ship operators will have to make operational decisions that may increase bunker prices in the medium-term outlook.
The market looks rather steady at the moment while no new production cuts are expected for the coming months. Bunker prices may continue rising slightly next week, although it is too early to talk about firm upward trend.
* 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)