MABUX: Bunker market this morning, Aug 28

The Bunker Review was contributed by Marine Bunker Exchange (MABUX)

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO (Gasoil) in the main world hubs) continued insignificant and irregular changes on Aug.27:

380 HSFO - USD/MT – 365.90 (+3.75)
180 HSFO - USD/MT – 409.82 (+2.78)
MGO - USD/MT – 637.35 (-1.96)

Meantime, world oil indexes also changed sideways on Aug.27, after U.S. President Donald Trump predicted a trade deal with China after positive comments by Beijing, calming situation after a round of tariff hikes had sent markets reeling.

Brent for October settlement increased by $0.81 to $59.51 a barrel on the London-based ICE. Futures Europe exchange. West Texas Intermediate for October delivery rose by $1.29 to $54.93 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $4.58 to WTI. Gasoil for September lost $4.50.

Today morning oil indexes continue slight upward evolution.

Russia keeps a conservative budgeting policy and has its 2019 budget break even at an Urals price of $49.20 a barrel, the lowest breakeven price in over a decade. Urals, Russia’s key export grade, currently trades at $56.80 a barrel. Russia’s budget for this year is based on an average price of US$40 per barrel of crude as Moscow continues its cautious budgeting approach after the fallout of the 2014 price crisis. Saudi Arabia, on the other hand, needs oil at US$80-85 per barrel to break even this year. In fact, for Russia, the oil price level that would suit Middle Eastern producers could be rather high as it would weaken demand for the commodity that, together with natural gas, makes up as much as 40 percent of federal budget revenues.

OPEC’s share of the global oil market has sunk to 30%, down from more than 34% a decade ago and a peak of 35% in 2012, as a result of supply restraint and involuntary losses in Iran and Venezuela, and there is little sign yet producers are wavering on their output-cut strategy. Despite OPEC-led supply cuts, oil has tumbled from April’s 2019 peak above $75 a barrel to $60, pressured by slowing economic activity amid concerns about the U.S.-China trade dispute and Brexit. The decline in prices, should it persist, and erosion of market share could raise the question of whether continued supply restraint is serving producers’ best interests.

Besides, OPEC’s Joint Ministerial Monitoring Committee reported that compliance in the pact between OPEC and its allies to cut production topped 150%. Overall conformity jumped to 159% in July from the prior 137% and the average compliance of 134% since January was at its highest level so far this year. The committee also said that the pact between OPEC and allies led by Russia was supporting oil market stability and predicted that with “ongoing healthy oil demand” that has arrested growth in global oil inventories, the situation should lead to “significant draws” in the second half of 2019.

The US warned China against interfering with oil and gas operations off the coast of Vietnam. On August 13, the Chinese government deployed an oil survey vessel, the Haiyang Dizhi 8, and armed escorts into waters offshore Vietnam near Vanguard Bank, disputed waters in the South China Sea. The vessel had been deployed to these waters in July as well. As per U.S., China has taken a series of aggressive steps to interfere with ASEAN claimants' longstanding, well-established economic activities, in an attempt both to coerce them to reject partnerships with foreign oil and gas firms, and to work only with China's state-owned enterprises. In the case of Vanguard Bank, China is pressuring Vietnam over its work with a Russian energy firm and other international partners.

One particular area of risk is the further weakening of the yuan to the dollar. The yuan depreciated to 7.15 yuan to the dollar, the weakest rate since prior to the global financial crisis 11 years ago. Allowing the currency to depreciate is not without risks, as a weaker yuan could make debt repayment at the company level more painful for Chinese firms. However, the global impacts are probably even more important because of the importance of the yuan as a global currency, and because of the size of the Chinese economy. In early August, when the yuan initially weakened to the 7:1 level with the dollar following Trump’s announcement about new tariffs in September, the depreciation sparked an immediate response from multiple central banks. India, New Zealand and Thailand cut their interest rates in an attempt to head off a currency appreciation relative to the yuan. A week later, Mexico cut interest rates. Around 30 countries have already cut interest rates this year.

The American Petroleum Institute (API) has estimated a staggering crude oil inventory draw of 11.1 million barrels for the week ending Aug 22, compared to analyst expectations of a 2.112-million barrel draw. The inventory draw this week adds onto last week’s draw in crude oil inventories of 3.45 million barrels, according to API data. The EIA estimated that week that there was an inventory draw of 2.7 million barrels. US crude oil production as estimated by the Energy Information Administration showed that production for the week ending August 15 stayed the same at 12.3 million bpd, just 100,000 bpd off the all-time high of 12.4 million bpd. The U.S. Energy Information Administration report on crude oil inventories is due to be released later today.

We expect bunker prices may change irregular today in a range of plus-minus 4-7 USD/MT.