MABUX: Bunker market this morning, July 12

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) demonstrated slight upward trend on July 11:

380 HSFO - USD/MT - 451.42 (+20.66)
180 HSFO - USD/MT - 486.12 (+18.93)
MGO - USD/MT - 666.24 (+12.61)

Meantime, world oil indexes slightly decreased on Jul.11 as OPEC forecast slower demand for its crude next year.

Brent for September settlement decreased by $0.49 to $66.52 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for August delivery lost $0.23 to $60.20 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $6.32 to WTI. Gasoil for July unchanged: $594.50.

Today morning oil indexes do not have any firm trend so far and change irregular.

OPEC’s oil production dropped by another 68,000 bpd to 29.83 million bpd in June, as output from Iran and Libya - exempt from the production cut pact - and other members offset large increases in Saudi Arabia and Nigeria. The cartel’s output hit a new low in recent years and was at the lowest in five years in June, just ahead of OPEC and its allies rolling over the production cuts into March 2020. Last month, the largest drop in production was registered in Iran, whose crude oil production fell by 142,000 bpd to 2.225 million bpd, due to the U.S. sanctions on its industry. Iran’s production is now more than a million barrels per day down from its 2018 average of 3.553 million bpd. Based on OPEC’s oil market outlook for 2020 in this month’s report, the cartel expects demand for its crude next year to be lower than its current production and to average 29.3 million bpd, down by around 1.3 million bpd from 2019.

Iranian military boats tried to seize a British tanker near the Strait of Hormuz after threats this would happen following the seizure by Gibraltar of an Iranian tanker carrying crude for Syria. Five Islamic Revolutionary Guard Corps approached the British Heritage vessel as it was sailing into the Strait of Hormuz and ordered it to change course. The vessel, however, was escorted by a Royal Navy frigate, which threatened to shoot if the Iranians did not back away, which they did The report follows a threat from Iranian President Hassan Rouhani that the UK will face consequences for seizing its tanker.

Iraq said any disruption in the oil exports flowing through the Strait of Hormuz will be a major obstacle for its economy. Iran has threatened to close the Strait on numerous occasions in response to US or EU actions. Iraq has been studying ways around the vital chokepoint for oil exports for some time, but its options for doing so are limited. The country has the fourth largest oil reserves in OPEC, behind Saudi Arabia and Iran and Venezuela - the latter two which remain under strict US sanctions with their oil exports. Iraq is also OPEC’s second largest producer and relies heavily on these oil exports. Any disruption to its oil revenues would be of crucial consequence.

Oil demand continues to soften, which could result in a supply surplus in the second half of this year. The EIA downgraded its forecast for global oil demand growth to just 1.1 million barrels per day (bpd) this year, down from the 1.2 million bpd the agency forecasted last month and from 1.4 million bpd in May.

Another near-term catalyst for the fuel market will be decisions made by the U.S. Federal Reserve. Evidence of a mounting economic slowdown are widely expected to result in interest rate cuts, although how far the central bank will roll back recent hikes remains to be seen. A rate cut could provide a jolt to crude and fuel prices, both because lower interest rates are likely to extend the economic expansion and because lower rates tend to drag down the dollar, which would make crude more affordable. However, a rate cut is already somewhat factored into oil prices, which would reduce the impact when (or if) the Fed announces the move.

Oil production from the United States in the Gulf of Mexico have been slashed in half ahead of what is expected to be a whopper of a storm, named Barry. Oil companies in the United States have so far evacuated almost 200 offshore platforms ahead of the storm, including major oil producers Shell, BP, BHP, Exxon, and more, for a loss of roughly a million barrels of oil per day. Nearly 30% of the 669 production platforms in the Gulf of Mexico have been evacuated.

We expect bunker prices may demonstrate slight downward evolution today in a range of minus $1.0 to $3.0.