MABUX: Bunker market this morning, Sep 11

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 firm upward trend on Sep.10:

380 HSFO - USD/MT – 393.54 (+8.22)
180 HSFO - USD/MT – 435.01 (+7.11)
MGO - USD/MT – 658.80 (+6.00)

Meantime, world oil indexes changed insignificant and irregular on Sep.10 amid optimism that OPEC and other producing countries may agree to extend output cuts to support prices and after U.S. President Donald Trump fired national security adviser John Bolton, raising speculation of a return of Iranian crude exports to the market.

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.

Trump fired Bolton amid disagreements over how to handle foreign policy challenges such as North Korea, Iran, Afghanistan and Russia. The market took that as a sign that the Trump Administration may open the talks with Iran and probably return Iranian oil. Iran’s crude oil exports were slashed by more than 80% due to re-imposed sanctions by the United States after Trump exited last year Iran’s 2015 nuclear deal with world powers. In May, Washington ended sanction waivers given to importers of Iranian oil, aiming to cut Tehran’s exports to zero.

Saudi Arabia's new energy minister, Prince Abdulaziz bin Salman, said the kingdom's policy would not change and a global deal to cut oil production by 1.2 million barrels per day would be maintained. As per him, the OPEC+ alliance, made up of OPEC and non-OPEC producers including Russia, would be in place for the long term. The OPEC+ joint ministerial monitoring committee (JMMC), which reports on compliance with the cuts, is due to meet on Sep.12 in Abu Dhabi. There have been concerns about producers' adherence to the agreement as OPEC members Iraq and Nigeria, among others, exceeded their quota in August and Russia also did not fully comply.

JMCC may also discuss this week the implementation of new metrics to monitor the state of the global oil market and its balance. OPEC is now considering using several metrics to assess where global oil (over)supply stands, including taking the five-year average of oil stocks in 2010-2014 instead of the most recent five-year average 2014-2018, which it currently reports in its monthly oil market reports and which the International Energy Agency (IEA) also takes as a benchmark to measure oil inventories. There are concerns that the 2010-2014 average metric will not give a correct comprehensive assessment of the oil market.

Russia is considering the notion that oil prices may be as low as $25 per barrel in 2020. Russia’s Central Bank has forecast in its macroeconomic forecast that oil could possibly hit that low due to falling demand for oil and oil products worldwide, as well as from disappointed global economic growth. If that risk scenario actually materializes, Russia’s inflation could increase to 7% or 8% next year, on the back of falling gross domestic product to 1.5%– 2%. Meantime, Russia is more impervious to low oil prices compared to its competitors because its currency weakens when oil prices fall. This provides some type of a protection—at least to some extent—for its lower oil revenues. Russia’s budget for 2019 was based on $40 oil. Meanwhile, Saudi Arabia needs $80 or even $85 per barrel.

The main headwind for oil/fuel prices, however, remains. The U.S. and China are far from a trade deal despite positive signals from both sides about their willingness to settle their differences. Until this trade war finds a resolution, prices will have a pretty limited space for growth, whatever OPEC+ decides to do.

Argus and the Asia Pacific Exchange (APEX) signed an agreement licensing the use of the Argus Bunker Index (ABI) Singapore LSFO 0.50%S as the settlement price for a proposed new derivatives contract. The contract can be used by oil traders, bunker fuel suppliers and shipowners to manage their price risks related to the new low-sulphur fuel oil (LSFO) required to comply with the 0.50% sulphur cap. The LSFO 0.5%S index represents the price of bunker fuel delivered within 4-12 days from the trade date, for volumes between 500 tonnes and 3,000 tonnes, with viscosity of less than 380 centistoke (cSt) and sulphur below 0.50%.

The American Petroleum Institute (API) has estimated a large crude oil inventory draw of 7.227 million barrels for the week ending September 5, compared to analyst expectations of a 2.6-million barrel draw. The inventory build this week takes away from last week’s build in crude oil inventories of 401,000 barrels, according to API. The EIA estimated that week that there was an inventory draw instead, of 4.8 million barrels. After today’s inventory move, the net draw for the year is 25.90 million barrels for the 37-week reporting period so far, using API data.

We expect bunker prices will stay stable today with possible fluctuations in a range of plus-minus 3-7 USD.