MABUX: Bunker market this morning, Aug 01

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) changed insignificant on July 31:

380 HSFO - USD/MT - 425.54 (+7.14)
180 HSFO - USD/MT - 460.55 (+6.51)
MGO - USD/MT - 662.12 (+5.47)

Meantime, world oil indexes continued upward trend on Jul.31 following a larger-than-expected drop in U.S. inventories and after the Federal Reserve cut U.S. interest rates for the first time in more than a decade.
 
Brent for September settlement increased by $0.45 to $65.17 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for September delivery gained $0.53 to $58.58 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $6.59 to WTI. Gasoil for August added $9.50.

Today morning oil indexes turned into slight irregular changes.

U.S. crude stockpiles fell for a seventh straight week, slumping 8.5 million barrels last week, far exceeding forecast expectations for a decrease of 2.6 million barrels. At 436.5 million barrels, U.S. crude inventories, not including strategic oil reserves, were at the five year average for this time of year. The drawdown came even as offshore production restarted as the effects of Hurricane Barry waned, with output rebounding to 12.2 million barrels per day, near recent levels, from 11.3 million bpd a week earlier. It was also reported that U.S. crude oil output in May slipped from a monthly record high, falling 26,000 bpd to 12.11 million bpd.

After its two-day policy meeting, the U.S. Fed cut interest rates, citing concerns about the global economy and muted U.S. inflation. The central bank signaled a readiness to lower borrowing costs further if needed. The Fed said the rate cut should help return inflation to its 2% target but that uncertainties about that outlook remain.

Tensions in the Middle East remain high, providing another buttress to prices, with the U.S. formally asking Germany to join France and Britain to help secure the Strait of Hormuz after the seizure of a British tanker by Iran. Germany has expressed scepticism about the request.

Crude oil in floating and onshore storage in Iran has exceeded 110 million barrels while the number of barrels in floating storage specifically had increased almost twofold over the last two months. Oil in floating storage reached 56 million barrels, as exports continued to slide, falling to 417,000 bpd in July from 532,000 bpd in June. Oil in onshore storage stood at 55.5 million barrels at the start of this week. So, there’s more than 110 million barrels of crude in storage, ready to flow and push prices lower. Since the chance of the United States suddenly reconsidering its stance on Iran is non-existent, this amount will only continue to rise.

Meantime, Iran and Russia are planning a joint military drill in the Persian Gulf and the Strait of Hormuz. The Iranian armed forces had signed a contract for the drills with the Russian Ministry of Defense. It was not said, when the drills will be carried out. In any case, the news clearly points towards a continued warming of bilateral relations amid increasing U.S. pressure on both countries, particularly Iran. It was also reported that Britain’s new PM Boris Johnson was being pressured to invite Russia and China to join the European fleet that he is seeking to form to protect vessels in the Persian Gulf. If done, this would be a controversial move in the UK, whose own relations with Russia and China are the opposite of friendly.

China’s crude imports from Saudi Arabia surged to 7.72 million mt, or about 1.89 million barrels per day (bpd) in June, shattering the record of 7.33 million mt hit in March. Such a surge was partly attributable to the startups of two private refiners - Hengli Petrochemical and Zhejiang Petrochemical - which significantly boosted crude processing capacity in the country. Both of them have crude supply agreements with Saudi Aramco. By contrast, China’s Iranian crude imports sank near 60% from the same period of last year to 855,638 mt or 209,060 bpd in June as US sanctions bit.

Indonesia announced last week that it would not enforce the upcoming IMO 2020 rule requiring marine vessels to burn bunker fuels containing no more than 0.5 percent sulfur on its domestic shipping fleet. Indonesia’s actions may have a noticeable impact on at least the Asian bunker fuel market. The country made its decision in reaction to the high cost of new, cleaner fuels. Instead of complying with the IMO mandate, Indonesian-flagged vessels can keep burning high-sulfur fuels within Indonesian market.

We expect bunker prices may continue upward trend in a range of plus 3-8 USD.