MABUX: Bunker market this morning, Dec 27

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) demonstrated insignificant changes during Christmas holidays:

380 HSFO: USD/MT – 375.55 (+0.59)
180 HSFO: USD/MT – 412.70 (+0.95)
MGO: USD/MT – 694.71 (+0.11)

Meantime, world oil indexes slightly rose on Dec 26, buoyed by hopes of an end to the China-U.S. trade fight.

Brent for February settlement increased by $0.72 to $67.92 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for February gained $0.57 to $61.68 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $6.24 to WTI. Gasoil for January delivery added $7.75.

Today morning global oil indexes continue slight upward trend.

Oil freight rates from the US Gulf Coast for Aframax crude tankers hit a new record last week, as demand increases for US crude oil bound for Europe and the Mediterranean in front of the new IMO 2020 rules that will go into effect in just a couple of weeks. The worldscale rate for an Aframax tanker was $46,800 per day. But Equinor and Unipec have chartered Aframax tankers this week for $60,700 per day—a near 30% increase in just one short week. Europe’s appetite for light, sweet crude oil has increased over the last couple of weeks, as new maritime rules—known as IMO 2020—will cap the amount of sulfur allowed in fuel burned by maritime vessels.  This spike in demand is limiting the number of Aframax tankers available, and as such, is increasing the costs to ship the IMO 2020-compliant oil.

While IMO 2020 is expected to increase demand for low-sulfur crude, not every country has agreed to the new rules, including Mexico, Venezuela, and Thailand,  and not every country who has signed it will comply full force from the very beginning. The new IMO rules stipulate that ships can only use fuel that contains 0.5 percent of sulfur, down from the current 3.5 percent maximum allowed sulfur content. If a vessel is fitted with a scrubber that captures most of the sulfur in the fuel, it can continue using high-sulfur fuel.

Trump's signing the 2020 NDAA into law on Dec.20, and with it, sanctions targeting European and Russian companies laying the Nord Stream 2 pipeline, had the immediate impact of forcing a work stoppage over the weekend as Allseas, the Swiss company that is Nord Stream’s main contractor. The new US punitive measures specifically target companies and their executives assembling the pipeline, including the very ships laying the pipeline on the controversial 760-mile project that would allow Russia to export natural gas directly to Germany and is expected to come online within the next year. Despite Allseas set to pull out its fleet of pipe-laying ships, Russia and Germany are vowing to move forward unimpeded.

A Wall Street Journal survey of 13 major investment banks finds that analysts see oil prices falling next year as the OPEC+ deal fails to rally prices. The average Brent forecast is $61.23 per barrel in the first quarter of 2020, barely up from last month’s forecast despite the deeper production cuts. In the short run, investors are bullish – net-bullish wagers on oil futures rose to their highest level in seven months last week.

Saudi Arabia and Kuwait are on the brink of a deal to restart production at the Neutral Zone oil fields that lie on the border of the two countries, potentially ending a five-year dispute. The fields can produce 500,000 bpd but were shut down in 2014. The restart would still be subject to the OPEC+ deal, meaning any increase would likely need to be offset elsewhere.

Also supporting prices, the American Petroleum Institute, said late on Dec.24 that U.S. crude stocks fell by 7.9 million barrels last week, much more than forecast by analysts. Trading volume remained low due to the Christmas holiday, which has delayed the release of the U.S. government’s official oil inventory report by two days until Dec.27.

We expect bunker prices may demonstrate slight upward movement in a range of plus 3-5 USD.