MABUX: Bunker prices have a good background to continue upward trend
The Bunker Review is contributed by Marine Bunker Exchange
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) demonstrated upward changes in the period of Dec. 14 - Dec. 21 :
380 HSFO - up from 348.21 to 359.21 USD/MT (+11.00)
180 HSFO - up from 388.21 to 399.79 USD/MT (+11.58)
MGO - up from 588.57 to 596.50 USD/MT (+7.93)
Ongoing supply disruptions from the Forties pipeline in the North Sea lend supports fuel indexes. The Forties pipeline system developed a crack last week and its operator, Ineos, had to shut down the system for repairs on Dec.11. It has been declared it was moving forward with a preferred repair works and it will take about 2-4 weeks (starting from Dec. 11) to fix the pipeline. The Forties system is an all-important pipeline in the North Sea, carrying 450,000 bpd to the UK mainland. Its outage could force North Sea oil producers to temporarily shut down output.
A union for Nigerian oil workers declared a strike on Dec.18 on demands for improved working conditions went unaddressed, raising questions about supply outages in the African nation. However, the strike was called off the same day as talks seemingly started to get somewhere, although details remain unclear. It reduced concerns of a major supply disruption. At the same time, the issue is important for the global fuel market - an outage at a major oil producing country could lead to sharply higher prices.
The Energy Information Administration reported yet another inventory draw for last week, making it the fifth one in a row with falling inventories. The authority said inventories had gone down by 6.5 million barrels to 436.5 million barrels (forecast expected a draw of 4.5 million barrels).
The drilling activity in the U.S. also declined last week, supported fuel prices. The number of active oil rigs in the U.S. fell by 4 and stands at 747 versus 510 a year ago. The total oil and gas rig count in the U.S. now stands at 930 rigs (up 293 rigs from a year ago).
At the same time U.S. crude oil production continues to rise, ninth week in a row, placing further pressure on prices. The daily rate reached 9.789 million barrels last week, from 8.95 million bpd at the start of the year. This means U.S. output is fast approaching that of top producers Saudi Arabia and Russia, which are pumping 10 million bpd and 11 million bpd respectively. Moreover, all forecasts point to a consistent further increase in U.S. production, which may well undermine OPEC and Russia’s production cut efforts. According to EIA forecast published on Dec. 18, shale production in the U.S. may rise to a record in January, as higher prices encourage companies to pump more. It may increase by 94,000 barrels per day to 6.41 million bpd.
For the third time in roughly seven weeks, Houthi rebels have fired a ballistic missile into Saudi Arabia on Dec.19. The missile launched by the Yemeni rebels was reportedly shot down by Saudi air defenses before striking the al-Yamama royal palace. Houthi-controlled television has claimed that the missile targeted a meeting of Saudi leaders in a palace. This fact supported fuel indexes instantly.
Oil disruptions of the North Sea Forties pipeline may continue to support fuel indexes during the next week as repair works will last at least until Dec.25. At the same time, rising U.S. production is countering OPEC's cuts and other supply losses. The energy minister of Saudi Arabia, the world's top crude exporter, said it would take more time to rein in a global supply overhang, which was created by strong global production increases and is strengthens by growing U.S. production. Meantime, OPEC is also quietly discussing its exit strategy from the production cut agreement. The strategy will be announced at the June meeting of the Vienna Club. Until then, it will be among the most important factors in the global fuel market. Today we can see that the market is quite optimistic seeing OPEC+ supply cuts results. We expect bunker prices may continue 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)