MABUX: Bunker market this morning, July 22

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO (Gasoil) in the main world hubs) continued moderate downward evolution on July 19:

380 HSFO – USD/MT – 421.20 (-6.22)
180 HSFO – USD/MT – 457.96 (-4.50)
MGO – USD/MT – 653.69 (-5.18)

Meantime, world oil indexes turned into slight upward trend on Jul.19 supported by rising tensions between the United States and Iran.

Brent for September settlement increased by $0.54 to $62.47 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for September delivery rose by $0.34 to $55.76 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $6.84 to WTI. Gasoil for August added $7.00.

Today morning oil indexes continue moderate upward movement.

Iran’s ambassador to Britain warned against escalating tensions on Jul.21 as a UK official declined to rule out sanctions in response to Tehran’s seizure of a British-flagged oil tanker. Britain has called Iran’s capture of the Stena Impero in the Strait of Hormuz on Jul.19 a “hostile act”. Tehran’s action followed the July 4 capture by Royal Marines of the Grace 1 tanker carrying Iranian oil near Gibraltar. Iran has repeatedly threatened to close the Strait of Hormuz if it cannot export its oil because of the sanctions but cannot legally do so as part of the waterway is in Oman’s territorial waters. Oman has urged Iran to release the tanker and called on all parties to exercise restraint and resolve differences diplomatically.

The International Energy Agency (IEA) doesn't expect oil prices to rise significantly because demand is slowing and there is a glut in global crude markets. The IEA is revising its 2019 global oil demand growth forecast down to 1.1 million barrels per day (bpd) and may cut it again if the global economy and especially China shows further weakness. Last year, the IEA predicted that 2019 oil demand would grow by 1.5 million bpd. But in June this year it cut the growth forecast to 1.2 million bpd. IEA noted that substantial amount of oil is coming from the United States, about 1.8 million barrels per day, plus oil from Iraq, Brazil and Libya

China’s crude throughput totaled around 316.97 million mt in the first half of 2019, up by 5.8% year on year. In June alone, China processed about 53.70 million mt of crude, up by 7.7% year on year, and the growth rate climbed by 4.9 percentage points from the previous month. The country’s crude imports totaled around 39.58 million mt in June, up by 15.2% year on year. China imported about 245 million mt of crude in January-June 2019, up by 8.8% year on year, and the growth rate was 0.6 percentage points higher than that in the first quarter.

The P&I Club said that to achieve compliance with the sulphur cap, simply switching to a low sulphur fuel at January 2020 will not be enough. With the majority of vessels expected to opt for very low sulphur fuel oils (VLSFO) or marine gasoil (MGO) to comply with the 0.50% sulphur directive, Standard Club has reminded members that high sulphur fuel oils (HSFO) tend to stick to the inside of fuel tanks and pipelines forming layers of sludge and sediments. It may contaminate the new fuel loaded, rendering the fuel non-compliant and pushing emissions above the 0.50% sulphur cap. Standard Club is advising members intending to use low sulphur fuel oil to start preparatory and precautionary steps several months ahead of the regulatory enforcement date.

ING suggests that compliant fuel availability may not be too much of an issue as the industry moves into 2020. Looking at the use of scrubbers as a 2020 compliance option, ING acknowledges that issues such as the imposition of open loop scrubber bans by some global ports could act as a brake on uptake.  However, the spread between gasoil and HSFO does provide a price incentive for owners to go down the scrubber route. ING notes that there are already signs that the impending IMO regulation is beginning to have an impact on the industry. Higher sales volume of marine gasoil at the world’s largest bunkering hub of Singapore is one indicator of a shift in fuel procurement. Vessels will begin the transition towards compliant fuels over the course of Q4 2019.

U.S. drillers cut five oil rigs in the week to July 19, bringing the total count down to 779, the lowest since February 2018. The news rendered some momentum support to fuel prices as well.

We expect bunker prices may demonstrate today slight upward trend in a range of plus USD 3-7.