The Bunker Review is contributed by Marine Bunker Exchange
World fuel indexes demonstrated irregular changes during the week. Despite of that, prices are still holding on to near nine-week highs, supported by robust U.S. jobs da-ta and a slight fall in the U.S. drill rig count, even as rising output from OPEC capped global fuel market.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) hasn’t had any firm trend and changed irregular in the period of Aug. 03 – Aug. 10:
380 HSFO - up from 300.50 to 305.14 USD/MT (+4.64)
180 HSFO - up from 341.29 to 345.07 USD/MT (+3.78)
MGO - down from 521.14 to 515.50 USD/MT (-5.64)
OPEC production rose in June and July, putting the group’s output at its highest level so far this year. Iraq and the UAE have routinely overproduced, while Saudi Arabia has also boosted output to meet higher summer demand. Rising production from exempted countries Libya and Nigeria are overwhelming some of OPEC’s cuts. Total production from the cartel stands somewhere around 32.9 million barrels per day: almost 1 million bpd above its low point from earlier this year.
Meantime, a joint OPEC - non-OPEC technical committee said on Aug.08, that it expects greater adherence to the pact to cut 1.8 million barrels per day in production. As a part of these efforts, Saudi Arabia promised to cut allocations to its customers worldwide in September by at least 520,000 barrels per day (bpd). The UAE, Iraq, Kazakhstan, and Malaysia also ex-pressed their full support for the existing agreement and their willingness to cooperate in order to achieve the goal of reaching full conformity to the deal.
Iraqi oil exports topped 100 million barrels in July, but that’s still lower than the 3.93 million barrels per day rate Baghdad boasted back in May. Each month, the United States accepts a larger share of Iraq’s total exports in a bid to replace the high sulphur, heavy grades of crude that Saudi Arabia used to supply. Riyadh has made lowering its exports to the U.S. as a part of its strategy to lower crude inventories in the North American nation.
In the beginning of this week Libya’s largest oil field Sharara was once again endangered by local fighting: a key control room at the facility was shut down. Several hours later output was restored, although there was no information if the field was producing at full capacity. These events show how sensitive is Libya’s oil sector at the moment. If ongoing problems do present there, it could put a significant dent in crude supplies - giving support to the global fuel prices.
Meantime, as per statistics, Libya’s crude output and exports reached a fresh three-year high last month. The country shipped about 865,000 barrels a day of crude in July. That was a gain of 11 percent from June, which was already the highest since at least July 2014. The speed at which Libya can revive crude sales is rather critical for the fuel market at the moment: OPEC extended the cuts accord and Libya’s exemption from it through March 2018.
The crisis in Venezuela continues. The U.S. imports about 800,000 bpd of Venezuelan heavy crude; cutting that off could potentially lead to full-on collapse in Venezuela and would likely also deepen the humanitarian crisis. Even limited new US-imposed sanctions or discussions of broader sanctions could be a catalyst for Venezuela defaulting on its upcoming debt payments.
Due to these risks the Trump administration declined to sanction Venezuela’s oil sector and instead announced sanctions specifically targeting President Nicolas Maduro. At the same time, U.S. officials have said that the more severe punishment of oil-related sanctions are still on the table. So there is a big risk of default for Venezuela, which will impact global fuel market and push oil and fuel prices further up.
U.S. shale is showing some signs of slowing down. There are a variety of reasons for this, including fear of another price downturn, more caution from oil companies themselves and slowdown in drilling services. U.S. drillers cut one oil rig in the week to Aug. 4, bringing the total count down to 765.
However, after hedging largely stopped when WTI prices fell down in June, U.S. shale oil producers have started to hedge again. There is, however, a difference from the last hedging activity that took place after OPEC and Russia started their output cut deal. Now, some Companies are hedging at prices as low as US$45 a barrel. Shale producers are once again careful with their future profits, or at least the avoidance of losses.
U.S. crude oil inventories continue to fall. The EIA just released last week’s data, show-ing another drawdown in inventories: by 6.5 million barrels to 475.4 million. U.S. crude oil inventories are now down more than 50 million barrels from the peak hit in March, with stocks back within the five-year range. This data added to optimism that the fundamentals were beginning to rebalance.
The market looks rather steady at the moment hoping that OPEC+ cuts will likely translate into much lower production next year. Bunker prices may continue irregular changes next week: it is too early to talk about any 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)