MABUX: Bunker market this morning, Mar 30
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) declined on Mar.27:
380 HSFO: USD/MT 253.35 (-3.88)
VLSFO: USD/MT 316.00 (-10.00)
MGO: USD/MT 406.96 (-12.94)
Meantime, world oil indexes also fell on Mar.27 as demand destruction caused by the coronavirus outweighed stimulus efforts by policymakers around the world.
Brent for May settlement decreased by $1.41 to $24.93 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for May fell by $1.09 to $21.51 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $3.42 to WTI. Gasoil for April delivery lost $3.50.
Today morning global oil indexes do not have any firm trend so far.
Brent oil futures may be trading at $27 per barrel but oil producers are selling their crude in the physical market at lower prices not seen since the aftermath of the Asian financial crisis of the late 1990s. Most are offloading their oil for below $20 a barrel as the coronavirus pandemic savages demand and global supply rises amid a battle between Saudi Arabia and Russia for market share. While some crude grades typically sell at a discount to Brent, the market environment is making that gap even wider and other grades that usually cost more than the European benchmark are now cheaper for the most time ever.
A fast-rising tide of crude oil is filling up storage tanks around the world and putting a strain on the global refining system. IHS Markit estimated that the global oil market is headed for a first-half 2020 surplus of 1.8 billion barrels, exceeding the top end of the advisory firm’s estimate of available crude-oil storage capacity of 1.6 billion barrels. The main driver for the surplus comes from the unprecedented collapse in global demand as major economies curtail activity on a massive scale in an effort to slow the spread of COVID-19. Meanwhile, a price war between Saudi Arabia and Russia after Moscow rejected a Saudi-led effort to increase existing production curbs in response to the pandemic has contributed to the plunge. The existing production limits expire at the end of the month.
The Group of 20 major economies last week pledged to inject more than $5 trillion into the global economy to limit job and income losses from the coronavirus.
Saudi Arabia has promised a flood of cheap oil to Europe, but it looks like demand for the ultra-cheap Saudi crude doesn’t exist after all. Regardless of the cheap extra Saudi crude oil, refiners in Europe plan to cut allocations for Saudi oil by as much as 25 percent for April, as many major economies – including Germany, France, Spain, Italy, and the UK – are in lockdown mode to try to slow the spread of the coronavirus. The widespread lockdowns are leading to a massive slump in oil demand in Europe’s biggest economies. Refining operations in Europe and elsewhere are scaling back as gasoline and jet fuel demand falls off a cliff due to the pandemic.
Russia said, a new OPEC+ deal to balance oil markets might be possible if other countries join in. It was not specified, who the new deal's members should or could be. U.S. President Donald Trump said last week he would get involved in the oil price war between Saudi Arabia and Russia at the appropriate time. As per Russia, a global economic crisis was inevitable as global debt to the world's gross domestic product had risen to 323% as of now from 230% at a time of the previous economic crisis of 2008.
Goldman Sachs expects oil demand to fall by 10.5 million barrels per day (bpd) in March and possibly by as much as 18.7 million bpd in April. Investment bank said, a demand shock of this magnitude will overwhelm any supply response including any potential core-Organization of the Petroleum Exporting Countries output freeze or cut, adding that the scale of the demand collapse will require a large amount of production to be shut-in, of potential several million barrels per day. Such a hit on production would not likely be reversed quickly.
The US oil and natural gas rig count dropped by 47 to 766 on the week. The drop was the largest single-week hit since the final week of December 2015, when the rig count fell 77 to 691 while oil prices were in the mid-$30s/b and falling. This past week, 40 of the 47 rigs shed were oil-directed, to drop the total to 627, while rigs chasing gas dropped by seven to 139.
Nearly half of the rigs dropped (20) came from the Permian Basin of West Texas/New Mexico, leaving a total of 396. Operators’ breakeven prices for drilling projects are higher than oil prices are today. At $35/b WTI, more than $10/b above where prices are today, less than 10% of US onshore resources will deliver a return.
We expect bunker prices may change irregular today in a range of plus-minus 3-6 USD.