MABUX: Bunker market this morning, Apr 01

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 slight downward movement on March 31:

380 HSFO: USD/MT 243.67 (-5.29)
VLSFO: USD/MT 308.00 (-6.00)
MGO: USD/MT 398.02 (-6.55)

Meantime, world oil indexes firmed on Mar. 31 after U.S. President Donald Trump and Russian counterpart Vladimir Putin agreed to talks aimed at stabilising energy markets.

Brent for May settlement decreased by $0.02 to $22.74 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for May rose by $0.39 to $20.48 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $2.26 to WTI. Gasoil for April delivery gained $7.50.

Today morning global oil indexes do not have any firm trend so far.
 
US President Donald Trump and Russian President Vladimir Putin agreed on Mar.30 to have energy officials from both countries discuss the dire state of the global oil market. Neither President detailed what specific issues or possibilities they would discuss. Meantime, The U.S. is also applying pressure to Saudi Arabia. It would take—at a minimum—both Saudi Arabia and Russia to effect any real change. Even if all of OPEC will continue with further production cuts, it is doubtful at this point that even aggressive action will have enough potential to trim the oil glut and boost prices at a time when the coronavirus continues to shrink demand. Although the futures market is seeing a recovery at the moment, physical cargoes are selling in some regions at single digits, with sellers offering hefty discounts

Under Rystad Energy’s updated base case scenario of $34 per barrel in 2020 and $44 per barrel in 2021, global capital expenditure (capex) for exploration and production firms (E&Ps) is expected to drop by up to $100 billion this year, about 17% versus 2019 levels. Expected decline this year will make 2020’s capex volumes, estimated at about $450 billion, the lowest in 13 years. As the most flexible of the supply segments in terms of cost reduction, US shale players are expected to reduce their investments by about 30% year-on-year. These measures will be quickly reflected in the oil market supply, with shale oil supply growth set to slow down in 2020.

IHS Markit estimates, globally, the countries/regions with the lowest oil capacity (estimated in how many days of crude oil production could be placed in available storage) are Nigeria, Brazil, Ecuador, and Alberta in Canada. The U.S. PADD 4 Rocky Mountain district, which includes Wyoming and Colorado, has 12.8 days of storage capacity, while all U.S. districts combined have 30.2 days of storage. Russia’s days of storage are 8.0, while Saudi Arabia’s are estimated at 18.0.

Russia’s largest oil producer, Rosneft, has announced that it is halting operations in Venezuela and selling its assets there (including multiple joint ventures, oil-field services companies, and other activities) to a company fully owned by the Russian government. The move appeared to be aimed at protecting Rosneft from U.S. sanctions while Russia continues supporting Venezuelan President Nicolas Maduro. The United States has imposed sanctions on two Rosneft subsidiaries, including a company based in Geneva that sells crude oil to European customers.

Supertanker rates are surging again, for a second time this month, as a growing global glut is making more traders and companies look to charter carriers to store oil at sea and sell at a later date to profit from the market structure. The Saudi pledge to start flooding the market with oil as early as this week is also driving up freight rates for very large crude carriers (VLCCs). At the moment 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: the market situation in which front-month prices are lower than prices in future months, pointing to a crude oil oversupply and making storing oil for future sales profitable. The run on supertankers during the massive glut and the Saudi supply surge sent supertanker rates for the route from the Middle East to China jumping to $180,000 a day on Mar.30. That’s double from the $90,000 a day rate in the middle of last week.

It is forecasted LNG trade to grow by just 2% in 2020 due to low demand. A mild winter and a decline in Asian spot LNG prices have resulted in higher inventories in both Europe and Asia thereby impacting imports. This scenario is unlikely to change as the market enters the seasonal low-demand period. Reduced LNG demand in Europe and Asia resulted in low LNG prices globally with the UK NBP price at $2.20 per MMBtu in March 2020, falling 29% from the start of the year while Asian spot LNG price declined to $3.40 per MMBtu in February from $5.90 per MMBtu in January.

The American Petroleum Institute (API) estimated on Mar.31 a large crude oil inventory build of 10.485 million barrels for the week ending March 28, as 75% of Americans remain under lockdown in some form or another. This inventory move was expected to be for a much smaller build of 3.997-million-barrels. In the previous week, the API estimated a surprise draw in crude oil inventories of 1.247-million barrels, while the EIA’s estimates were more bearish, reporting a build of 1.6 million barrels for the week. US crude oil production as estimated by the Energy Information Administration showed that production for the week ending March 20 slipped back slightly to 13.0 million bpd.

We expect bunker prices may change irregular today in a range of plus-minus 3-6 USD.