MABUX: Bunker market this morning, Mar 24

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) demonstrated slight downward trend on March 23:

380 HSFO: USD/MT 258.85 (-3.97)
VLSFO: USD/MT 330.00 (-7.00)
MGO: USD/MT 419.19 (-7.02)

Meantime, world oil indexes did not have firm trend on Mar.23 with demand still sliding as travel and industrial activity contracted across the globe in a bid to stem the spread of coronavirus.

Brent for May settlement increased by $0.05 to $27.03 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for May rose by $0.73 to $23.36 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $3.67 to WTI. Gasoil for April delivery lost $15.00.

Today morning global oil indexes have turned into slight upward correction.
 
The demand destruction caused by the coronavirus pandemic comes as the oil market contends with the unexpected price war that erupted between producers Russia and Saudi Arabia, effectively ending an OPEC+ alliance and flooding the market with barrels.

On Mar.20, OPEC Secretary General Mohammad Barkindo invited Texas Railroad Commissioner Ryan Sitton to the organisation’s summer meeting in June. Although this invitation quickly raised hopes for a deal to stabilise oil prices, Sitton attracted criticism as he called for decreased production of Texan crude output for the first time since 1970.  Neither Saudi Arabia nor Russia are backing down from their strategy in the ongoing price war. The increased supply that both countries are insisting on could soon send prices crashing even lower, as the unabating spread of the COVID-19 pandemic continues to lower demand.

Goldman Sachs said supply restraint by core-OPEC producers could push second-quarter Brent oil prices up to $30 a barrel, while U.S. measures to support the market could underpin prices in the near term. Meantime, even if any U.S. measures could support the oil market into the second half of the year, however, Goldman Sachs said accompanying supply cuts would still not be enough to offset the 8 million barrels per day (bpd) demand loss – brought about by countries slowing economic activity to halt the spread of the coronavirus which has caused nearly 10,000 deaths worldwide.

Rystad Energy predicts, global storage infrastructure is in trouble and will be unable to take more crude and products in just a few months. Current liquid balances show supply surpassing oil demand by an average of nearly 6 million bpd in 2020, resulting in an accumulated implied storage build of 2.0 billion barrels this year. Based on Rystad analysis, the world currently has around 7.2 billion barrels crude and products in storage, including 1.3 billion to 1.4 billion barrels currently onboard oil tankers at sea. On average, 76% of the world’s oil storage capacity is already full.

Wood Mackenzie in turn has reported that China’s crude stock (including strategic and commercial petroleum reserves) could reach 1.15 billion barrels in 2020 – but limitations in storage capacity are reducing the fill rate. Since the last oil price crash in 2014, China has been accelerating its crude imports for strategic and commercial storage from about 200 million barrels in 2014 to 900 million barrels in 2019. This is equivalent to about 70 days of its 2019 oil demand and 70% of its 2019 total storage capacity. China is expected to continue importing crude to fill its reserves taking advantage of lower oil prices. But this time, China could build its crude reserves by up to 300,000 barrels a day (b/d) from March 2020 to the end of 2020, due to limitations in storage capacity, as storage capacity utilisation reaches 90% this year.

Refining operations in Europe and elsewhere in the world are being curtailed as gasoline and jet fuel demand is falling down due to the enormous demand destruction in the spreading coronavirus pandemic. In Europe, oil majors are shutting down refinery units as major economies are under lockdown and flights are severely restricted. Across Europe, lockdowns in Italy, Spain, and France are crushing oil demand and German traffic is down 40 percent. Falling demand, including jet fuel demand, may force Japanese refiners to cut run rates. Japanese refiners are stocked with crude for April and don’t have much room to take extra barrels from Saudi Arabia, regardless of how cheap the flood of additional supply will be.

Asian spot liquefied natural gas (LNG) prices rose for a third straight week on slowly recovering demand in China as local transmissions of coronavirus ease but a flood of cargoes from the West could reverse price gains. The average LNG price for May delivery into northeast Asia LNG-AS was estimated at $3.50 per million British thermal units (mmBtu), up 20 cents from the previous week. Prices for cargoes delivered in April were estimated around $3.70/mmBtu, up 30 cents from a week ago. European gas demand could fall more than 4% over the next two months on depressed commercial and industrial activity as more countries lock down to tackle the spread of the novel coronavirus. This could see more cargo flows towards Asia, eventually depressing prices.

We expect bunker prices may change irregular today in a range of plus-minus 5-10 USD.