MABUX: Bunker market this morning, Sept 06

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) turned into firm upward trend on Sep.05:

380 HSFO - USD/MT - 363.40 (+8.23)
180 HSFO - USD/MT - 407.50 (+9.52)
MGO - USD/MT – 650.299 (+10.77)

Meantime, world oil indexes were little changed on Aug.05 as support from a sharp drawdown in U.S. crude inventories was countered by fears of slowing global demand growth amid doubts over resolving the U.S.-China trade feud.

Brent for November settlement increased by $0.25 to $60.95 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for October delivery rose by $0.04 to $56.30 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $4.65 to WTI. Gasoil for September lost $12.25.

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

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 4.8 million barrels from the previous week. At 423.0 million barrels, U.S. crude oil inventories are at the five year average for this time of year. This compares with a draw of as much as 10 million barrels for the previous week, which propped up prices, reversing yet another slide brought about by concerns about U.S.-China trade relations.

The trade war between the U.S. and China has become the number-one factor to watch when forecasting oil and fuel demand trends, overtaking even OPEC policies and the rising U.S. crude oil production. With the trade conflict already hurting economies around the world, the market hopes this time the talks would yield a deal. Meanwhile, neither side seems all too willing to make any concessions even though both economies have suffered the consequences of the conflict.

OPEC’s crude production rose last month, the first increase since the group and its allies started a new round of Lower oil prices and ongoing financial stress in the U.S. shale industry are creating headwinds for drillers, and it appears increasingly likely that supply growth could undershoot forecasts. U.S. oil production fell in June to 12.082 million barrels per day million bpd. That is a decline of 33,000 bpd from May. The EIA maintains that the U.S. will average 12.3 million bpd in 2019, which is looking increasingly optimistic. The U.S. only averaged 11.95 million bpd in the first six months of the year, so output would need to dramatically accelerate in order to bring the overall average up. It would seem that the agency may soon be forced to revise down annual growth estimates.
 
Libya’s National Oil Corporation reported $2.1 billion in income in July from its sales of crude oil and corresponding taxes. The figure represents a 23% increase over June, for an increase of $403 million. The revenue figures come from crude oil sales as well as sales of crude-derived products, taxes, and concession contract royalties. Libya’s production subsequently fell to 950,000 bpd, from its 1.3 million bpd level prior to the disruption. This was Libya’s highest daily production rate in six years. The country relies on the crude oil industry for 92% of its overall revenue.

A trade deal between Iran and the Eurasian Economic Union will take effect on October 26. It was reported that Iran became a member of the free-trade union as a means of boosting its economy amid crippling U.S. sanctions by increasing the share of non-oil exports in revenue streams. Russia, the leader of the EAEU, spearheaded the negotiations and will now provide financial help to the newest member of the union in the form of a US$1-billion loan for the construction of a power plant. Besides, the sanction-bound country will receive access to a free-trade zone with Iran’s ambassador to Russia estimating bilateral trade could spike to US$10 billion within two to three years.

Russia plans to bring its crude oil production to full compliance with the OPEC+ production cuts agreed last December. The country’s production in August was 143,000 bpd below its October 2018 level. The October 2018 production level made the baseline for the OPEC+ cuts. Russia pumped an average of 11.29 million bpd in August, which was not just higher than the cap it had agreed with OPEC but also the highest daily average since March. Meanwhile, OPEC’s share of the global oil market fell to the lowest in several years in August, to 30 percent, not least because of the production drops in sanction-bound Venezuela and Iran, but also because of the cartel-wide cuts.

Besides, Russia and India are about to get a lot more intimate in the energy sector next week, when the two countries announce what’s dubbed a Far East Energy Corridor involving increased Russian exports of oil, gas, and coal to India. India relies on imported oil for 80 percent of its consumption—a level of dependence that is overwhelmingly concentrated in the Middle East. With growing demand for oil and heightened price volatility, India’s best option is to expand the number of suppliers to spread risks more widely. India also has interests in developing oil and gas resources in Russia itself.

As per statistics, around 3.6 million barrels of oil per day are used to produce the fuels used by the shipping industry. Around one-sixth of the total is expected to remain dedicated to production of high-sulphur content heavy fuel oil for vessels equipped with scrubbers or those which do not immediately comply with the new regulations. That leaves about 3 millions barrels a day that needs to adjust to the 0.5 per cent fuel regulation. The first impact on shipowners will likely be an increase in costs. Fuels that meet the new regulations are more complicated to produce and market could see an even larger increase with higher demand. Those ships which will remain on heavy fuel oil + scrubber could also face higher prices as refineries need to recoup costs on smaller volumes.

We expect bunker prices for IFO will stay stable today while prices for MGO may add 3-8 USD.