MABUX: Bunker market this morning, Mar 18

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

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, VLSFO and MGO (Gasoil) in the main world hubs) continued firm downward trend on March 17:

380 HSFO: USD/MT 270.54 (-6.72)
VLSFO: USD/MT 353.00 (-14.00)
MGO: USD/MT 437.18 (-13.84)

Meantime, world oil indexes settled below $30 a barrel on Mar. 17 as the coronavirus pandemic slowed economic growth and oil demand.
 
Brent for May settlement decreased by $1.32 to $28.73 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for April fell by $1.75 to $26.95 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $1.78 to WTI. Gasoil for April delivery lost $6.25.

Today morning global oil indexes do not have any firm trend and change irregular.
 
Countries including the United States and Canada, along with nations in Europe and Asia, are taking unprecedented steps to contain the virus, which has already killed 7,500 people. Numerous governments have told residents to restrict their movements while businesses shutter, curbing demand for fuels.

The United States will start buying crude oil for the Strategic Petroleum Reserve within the next two weeks, with plans to buy around 77 million barrels. The move--which follows President Trump’s announcement last week that the government will buy “large amounts” of crude--aims to replenish the SPR by taking advantage of low oil prices while providing some much needed support for the local oil industry. The industry suffered a substantial blow by the latest oil price crash, especially in the shale patch. The Strategic Petroleum Reserve has a capacity to hold 713.5 million barrels of crude. Currently, it holds some 635 million.

China’s state oil and chemicals company Sinochem doesn’t want to have anything to do with crude oil related in any way to Russian oil giant Rosneft or any of its subsidiaries, as U.S. sanctions on two Rosneft units for trading Venezuelan crude are kicking in in May. Last month, the United States slapped sanctions on a Geneva-based trading unit of Rosneft, saying that the company Rosneft Trading has been helping Nicolas Maduro’s regime to evade sanctions and to continue selling oil to keep the Venezuelan regime alive. Then earlier this month, the US targeted another Rosneft subsidiary that had picked up the PDVSA oil mantle. The Chinese company is steering clear of any Rosneft or Rosneft-related trade with oil because it fears that the U.S. could widen sanctions to Rosneft companies other than Rosneft Trading.

The Saudi promise to flood the market with oil and the price collapse it triggered have had traders scrambling to book VLCCs, each capable of transporting up to 2 million barrels of oil. One reason for the high supertanker demand was Saudi Arabia’s increased bookings of tankers, on top of its own fleet, to transport extra 2.6 million bpd of its now super-cheap oil to all regions, as it aims to punish Russia by squeezing it out of key markets for refusing to back deeper production cuts. The United Arab Emirates (UAE) has promised another 1 million bpd of supply to the market next month, as former allies OPEC and Russia are now locked in a battle for market share. The other reason for high tanker rates is that traders and the trading arms of oil majors are looking to charter tankers for floating storage as the oil market structure has flipped to contango. At the end of last week, the cost to charter a supertanker had surged to $200,000-$300,000 a day, depending on the destination of the crude oil cargo (just before the OPEC+ break-up on March 6, daily rates for VLCCs were in the low $30,000s).

Meantime, Asian refiners are increasingly looking to book smaller tankers to load oil from the Middle East. Malaysia’s state oil company Petronas has provisionally booked a Suezmax, capable of carrying 800,000 to one million barrels of oil, from the Middle East to Malaysia. Some Indian refiners also look for smaller vessels for the relatively short trip from the Middle East to India, as ballooning supertanker rates haven’t tricked down to smaller ships yet. It is obvious, that the momentum spike in rates is pushing the market  to restrict VLCC use for faraway crudes and prioritize shorter voyages in Suezmax and Aframax vessels. Aframaxes can carry between 500,000 and 800,000 barrels.

The American Petroleum Institute (API) estimated  a surprise crude oil inventory draw of 421,000 barrels for the week ending March 13. The API also reported a large draw of 7.834 million barrels of gasoline for week ending March 13, after last week’s 3.09-million-barrel draw.  Distillate inventories were also down, by 3.625 million barrels for the week, compared to last week’s 4.679-million-barrel draw, while Cushing inventories rose by 66,000 barrels. US crude oil production as estimated by the Energy Information Administration showed that production for the week ending March 06 slipped back to 13.0 million bpd.

We expect bunker prices may continue to decline today in a range of minus 3-9 USD.