MABUX: Bunker Market this morning, March 28
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 slightly on Mar.27:
380 HSFO - USD/MT - 412.29(+2.79)
180 HSFO - USD/MT - 459.64(+2.71)
MGO - USD/MT - 634.14(+1.57)
Meantime, world oil indexes fell slightly on Mar.27, after the Energy Information Administration reported a moderate build in U.S. crude oil inventories for the week to March 22.
Brent for May settlement declined by $0.14 to $67.83 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for May delivery sank by $0.53 to $59.41 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of 8.42 to WTI. Gasoil for April delivery lost $0.50.
Today morning oil indexes extended losses into a second straight session.
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 2.8 million barrels from the previous week. At 442.3 million barrels, U.S. crude oil inventories are about 2% below the five year average for this time of year. Distillate fuel production averaged 4.9 million bpd last week, virtually unchanged on the week. Distillate fuel inventories fell by 2.1 million barrels. This segment of the downstream industry could see more action in the months to come as refiners prepare to capture higher profit margins from increased sales of low-sulfur bunkering ahead of the IMO’s new emission rules that enter into effect next January.
The International Energy Agency (IEA) reported Global energy-related CO2 emissions reached a historic high in 2018 – the highest rate of growth since 2013 and 70% higher than the average increase since 2010. The IEA notes that energy demand worldwide grew by 2.3% last year, its fastest pace this decade. The increase was attributed to a robust global economy and stronger heating and cooling needs in some regions. Natural gas has emerged as the fuel of choice, posting the biggest gains and accounting for 45% of the rise in energy consumption. Gas demand growth was particularly strong in the United States and China. Demand for all fuels also increased, with fossil fuels meeting nearly 70% of the growth for the second year running.
U.S. Energy Information Agency (EIA) forecasts that the implementation of the new IMO 2020 fuel specification will widen discounts between light-sweet crude oil and heavy-sour crude oil, while also widening the price spreads between high- and low-sulfur petroleum products. In the January forecast, Brent crude oil spot prices increase from an average of $61 per barrel (b) in 2019 to $65/b in 2020 with about $2.50/b of this increase being attributable to higher demand for light-sweet crude oils priced off of Brent. The expected increased premium on low sulfur fuels will likely mean higher diesel fuel refining margins, which EIA forecasts will increase from an average of 43 cents per gallon (gal) in 2018 to 48 cents/gal in 2019 and 65 cents/gal in 2020.
Hedge funds are buying oil once again after a pause earlier in March, signaling returning optimism about U.S. - China relations and subsiding concern about the global economy. The ratio between long and short positions on oil among funds is now five to one, which is a sign of returning confidence in the capability of the oil market to keep prices rising. Yet it is far from the 12-to-one ratio that was recorded last September, just before prices declined sharply.
Despite that, the concern about world economy is still there. Slowdown is expected for key economies such as China and India, as well as in Southeast Asia. In early March, Fitch cut its projection for the Indian economy to 6.8 percent from 7 percent, and that itself was a cut from a December revision from 7.8 percent. Meanwhile, China cut its own economic growth forecast for this year to 6-6.5 percent from about 6.5 percent. Any news about economic growth projection cuts in either of these countries immediately pressures oil and fuel prices and currently explains hedge funds’ relative caution in increasing their long bets.
Venezuela's main oil export port of Jose and its four crude upgraders were unable to resume operations following a massive power blackout on Mar.25, the second in a month. This week’s blackout will no doubt impact oil production and exports further, with OPEC likely using the production loss as a win in its drive to lower global oil inventories to see higher prices.
Tensions between the United States and Russia over Venezuela are also increasing, escalating over the weekend when two Russian planes with 100 troops landed in Venezuela. The United States was quick to condemn what it felt was an encroachment in South America, while Russia downplayed the incident, hinting that it had routine military contracts to fulfill at the time.
The unrest in Algeria in the form of mass protests seeking to force President Abdelaziz Bouteflika out of office has investors worried; but so far, there are no signs that oil and gas output has been affected. Protests began in mid-February with Bouteflika’s attempt to run for a fifth term as president. Market is now closely watching what the military’s next move will be, with news emerging yesterday that the military chief of staff has publicly taken sides with the protesters. Other political elite have also appeared to abandon Bouteflika, including some ruling party members and key business leaders. In the meantime, Algeria’s state-run oil company, Sonatrach, has decreased price for its April-loading cargoes of Saharan blend by 30 cents.
We expect bunker prices may demonstrate sight downward trend today in a range of minus 1-2 USD/MT.