MABUX: Bunker market this morning, Jan 3, 2020

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 slight irregular changes on January 2:

380 HSFO: USD/MT – 378.42 (+0.41)
VLS FO: USD/MT – 654.00 (-1.00)
MGO LS: USD/MT – 712.77 (-0.24)

Meantime, world oil indexes rose slightly on Jan. 02 amid concerns that U.S. crude production could rebound strongly

Brent for March settlement increased by $0.25 to $66.25 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for February rose by $0.12 to $61.18 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $5.07 to WTI. Gasoil for January delivery increased by $1.50.

Today morning oil indexes rise sharply underpinned by escalating tension in the Middle East.

Reports that a U.S. air strike killed key Iranian and Iraqi military personnel escalated Middle East tensions and raised concerns of oil supplies disruption. An air strike at the Baghdad International Airport early on Friday killed Iranian Major-General Qassem Soleimani, head of the elite Quds Force, and Iraqi militia commander Abu Mahdi al-Muhandis. Soleimani's killing marks a dramatic escalation in the regional "shadow war" between Iran and the United States and its allies. Iranian Supreme Leader Ayatollah Ali Khamenei vowed harsh revenge.

Iraq, the second largest producer among the Organization of the Petroleum Exporting Countries, exports about 3.4 million barrels per day of crude mostly from southern Basra port.

Oil prices were also supported by China's central bank saying on Wednesday it was cutting the amount of cash that banks must hold in reserve, releasing around 800 billion yuan ($115 billion) in funds to shore up the slowing Chinese economy. This came shortly after data showed China's production continued to grow at a solid pace and business confidence shot up. Earlier this week, Trump said a phase one trade deal will be signed on Jan. 15 at the White House.

In the market appear worries that U.S. oil drillers who had been restrained in their activity all through 2019 could turn the spigots back on full force this year. The big question this year is can or will U.S. producers be able to continue to add as much extra volume as they have been for the last seven - eight years. U.S. crude production hit a record high of 12.9 million barrels per day in 2019. Yet U.S. drillers cut the number of actively-operating oil rigs to 677 this year from 885 at the end of 2018, a 24% reduction. The main reason for such a cutback in actively-drilling U.S. oil rigs this year was the price uncertainty that persisted midyear.

Oil’s 2019 rally was largely helped by production cuts carried out by OPEC. Right from January the Saudi-led OPEC, joined by its ally Russia under the OPEC+ alliance, tried to enforce a daily production cut of 1.2 million barrels. As that arrangement was about to expire in December, OPEC+ said it would deepen the cuts to 2.1 million barrels per day from the start of 2020.
Despite its plan for stiffer reductions this year, OPEC+ could have a tougher time keeping oil prices up as U.S. shale oil output could rebound.

Non-OPEC oil supply, led by the U.S. shale, is forecast to grow by 2.1 million barrels a day in 2020, according to the Paris-based International Energy Agency (IEA). Global demand for oil, meanwhile, is set to increase by 1.2 million barrels a day next year. That means the world will need 900,000 fewer barrels of oil every day from both OPEC and non-OPEC producers alike, a situation that could sharply offset OPEC+ production cuts.

Also, Russia’s crude oil and condensate output hit a post-Soviet high last year even as it curbed production under an agreement with OPEC.

We expect bunker prices will demonstrate upward changes today: 1-3 USD up.