MABUX bunker market review as of March 1, 2019

The Bunker Review was contributed by Marine Bunker Exchange

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO (Gasoil) in the main world hubs) rose on Feb.28:

380 HSFO - USD/MT - 415.57(+3.50)
180 HSFO - USD/MT - 462.64(+3.64)
MGO          - USD/MT - 644.50(+3.43)

Meantime, world oil indexes changed insignificant and irregular on Feb.28 as U.S.-China trade tensions persisted, both Chinese and Indian economies showed signs of slowing and news of surging U.S. production undermined OPEC-led output curbs.

Brent for April settlement increased by $0.45 to $65.21 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for April delivery rose by $0.02 to $55.50 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of 9.71 to WTI. Gasoil for March delivery gained $8.75.

Today morning oil indexes continue upward evolution as markets tightened amid output cuts by producer club OPEC.

Factory activity in China, the world's biggest oil importer, shrank for a third straight month in February, as export orders fell at the fastest pace since the global financial crisis a decade ago. In Japan, Asia's second-biggest economy, factory output posted the biggest decline in a year in January as China's slowdown affects the entire region. Amid weak demand from China, oil producers are having to cut prices.

OPEC said U.S. President Donald Trump is welcome to join a dialogue on balancing the global oil market. Before tweet posted on Feb.25, President Trump hadn’t tweeted about OPEC this year, after expressing hopes at the end of November that the Saudis and OPEC would not be cutting production again. OPEC and allies, however, agreed in early December to a new production cut deal for six months through June, with an option to review in April.

U.S. President Donald Trump said he had walked away from a nuclear deal at his summit with Kim Jong Un because of unacceptable demands from the North Korean leader to lift punishing U.S.-led sanctions. Meantime, he noted that two days of talks in the Vietnamese capital Hanoi had made good progress in building relations and on the key issue of denuclearization, but it was important not to rush into a bad deal. The United Nations and the United States ratcheted up sanctions on North Korea when the reclusive state undertook a series of nuclear and ballistic missile tests in 2017, cutting off its main sources hard cash. There was no indication of when Trump and Kim might meet again but the White House said the respective teams look forward to meeting in the future. Failure to reach an agreement marks a setback for Trump and rendered short-moment pressure to fuel prices.

The U.S. crude oil inventories fell unexpectedly last week by 8.65 million barrel. That was compared to forecasts for a stockpile build of 2.84 million barrels after a gain of 3.67 million barrels in the previous week. At the same time oil production has risen by 100 thousand barrels per day the last week and more than 2 million barrels per day (bpd) over the last year, to an unprecedented 12.1 million bpd.

The U.S. Department of Energy plans to sell up to 6 million barrels of crude oil from the Strategic Petroleum Reserve (SPR), with deliveries taking place in April and May. The sale is part of the law that authorizes the Secretary of Energy to draw down and sell up to US$2 billion of SPR crude oil for fiscal years 2017 through 2020, to carry out an SPR modernization program. Sales from the SPR would likely have little effect on the global oil market and the U.S. didn’t tap the reserve before the sanctions on Iran returned.

Saudi Arabia’s crude oil exports to U.S. are falling sharply, with shipments so far this month at just 1.6 million barrels, versus 5.75 million barrels a year ago. While shipments to the United States fall, however, the amount of Saudi oil going to China will increase this year. Last year, Saudi shipments of crude to China averaged 1 million bpd but this year this may rise to 1.5 million bpd by the end of the first quarter as the Saudis aggressively seek a larger market share in the world’s second-largest oil consumer. Total Saudi oil exports next month are slated to fall further to 7 million bpd, with production cuts by the Kingdom at half a million barrels daily more than their quota.

Meantime, Saudi Arabia’s Aramco targets to stop producing fuel oil at its refineries by 2024, as stricter environmental regulations for the shipping industry will significantly cut the largest source of demand for fuel oil. Stricter regulations for the sulfur content of fuel (0.5%. max globally) come into force on Jan.01, 2020. The ship owners are preparing for the new emission regulations and many ships will stop using fuel oil of above 0.5-percent sulfur content, thus sinking demand for the higher-sulfur fuel oil. In 2017, Aramco produced 206,000 bpd of fuel oil at its fully owned refineries in Saudi Arabia.

We don’t expect bunker prices will have any firm trend today. Insignificant and irregular changes in a range of plus-minus 1-3 USD may prevail.