MABUX: Bunker market this morning, Apr 15

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, VLSFO and MGO (Gasoil) in the main world hubs) slipped lower on April 14:

380 HSFO: USD/MT 249.02 (-2.92)
VLSFO: USD/MT 291.00 (-2.00)
MGO: USD/MT 378.23 (-2.65)

Meantime, world oil indexes also fell on Apr.14 as investors were unconvinced that record supply cuts could soon balance markets pummelled by the coronavirus pandemic.

Brent for June settlement decreased by $2.14 to $29.60 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for May fell by $2.30 to $20.11 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $9.49 to WTI. Gasoil for May delivery lost $19.00.

Today morning global oil indexes have turned into slight upward correction so far.
 
The Organization of the Petroleum Exporting Countries, along with Russia and other producing countries (OPEC+) agreed over Easter to cut output by 9.7 million barrels per day (bpd) in May and June, equal to about 10% of global supply before the viral outbreak. The United States is reducing output as well, and other countries are taking the estimated cut in production to about 19.5 million bpd. However, there are still doubts that the reduction will not be enough to match a contraction of around a third of global oil demand due to the outbreak. Oil prices are still down by over 50% so far this year.

There are also questions about whether all parties will fulfil their commitments. Mexico objected to 400,000 bpd of cuts, instead agreeing to cut by only 100,000 bpd. Other countries may simply continue to overproduce. As per some evaluations, there are a number of commitments which appear highly unlikely to come to full fruition, with -23% cut pledges from the likes of Nigeria, Kazakhstan, and Iraq looking like a stretch by any historic compliance measure.

The EIA expects U.S. shale oil production to drop next month to 8.526 million barrels per day in the seven most prolific shale basins in the United States. The forecast for May for a 182,673-average barrel per day drop in oil production is expected to be the second largest drop according to EIA data dating back to 2007. The largest drop in oil production, is expected to be this month, down 193,625 barrels per day from March.

Saudi Arabia has said that even more production cuts could be done. US President Donald Trump also suggested that additional cuts could be under consideration, pointing out that 20 million bpd is closer to what OPEC had in mind for the production cuts. A 20-million-bpd production cut would come closer to matching the amount of demand that has been lost due to Covid-19. But other “effective production cut” figures suggest that OPEC’s cut may end up closer to 20 million bpd anyway, given the natural production declines that are bound to happen as a result of shrinking storage for crude oil and depressed prices.

China’s oil imports may have declined in March, while experts expect China’s economy to have sharply contracted in the first quarter of the year due to the coronavirus pandemic. China went in lockdown at the end of January and February to try to stop the spreading of COVID-19. As a result, demand for energy for industrial activity and for fuel sharply dropped. In March and early April, China was said to have been building its crude reserves, thanks to the cheapest oil in years, but the rate of filling storage would be lower than in previous years because of limited storage capacity, lending less support to oil prices this time around than in previous years.

India plans to completely fill its strategic petroleum reserve (SPR) by the third week of May by moving about 19 million barrels into the sites by then. India is moving the oil to the SPR to help refineries reduce their excess crude as the lockdown to contain the outbreak of COVID-19 has dented transportation and industrial fuel consumption in the country. India's fuel demand in March declined by 17.8%, the lowest in over two decades.

The American Petroleum Institute (API) estimated on Apr.14 another large crude oil inventory build of 13.143 million barrels for the week ending April 10 as demand destruction stemming from the coronavirus wears on. Today’s inventory build was expected to be smaller, 11.676 million barrels. In the previous week, the API estimated a large build in crude oil inventories of 11.938 million barrels, while the EIA’s estimates painted an even scarier picture, reporting a build of 15.2 million barrels for the week. For a bit of perspective regarding the challenges that this amount of oil buildup poses for the industry, the last few weeks of inventory builds in the United States, which total 35.566 million barrels using API data, is enough to fill more than 17 VLCCs.

We expect bunker prices may decline today in a range of minus $ 10-16.