MABUX: Bunker market this morning, Apr 21

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) slipped lower on Apr.20:

380 HSFO - USD/MT - 234.81(-2.69)
VLSFO - USD/MT – 273.00 (-2.00)
MGO - USD/MT – 359.55 (-3.03)

Meantime, world oil indexes fell on Apr.20 with a U.S. crude futures contract hitting its lowest level ever, depressed by concern that U.S. crude storage will soon be full while companies prepare to report the worst quarterly earnings since the financial crisis. Besides, sell-off was exaggerated by the contract’s imminent expiry.

Brent for June settlement decreased by $2.51 to $25.57 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for May delivery fell by $55.90 to minus $37.63 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $63.20 to WTI. Gasoil for May delivery lost $13.75.

Today morning global oil indexes do not have any firm trend so far.
 
An extreme situation has developed in the U.S. crude oil futures markets, as the current front-month May contract expiring on Apr.21 turned negative for the first time in history, opening up the widest gap ever between it and the next contract, nearly $61 a barrel. That gigantic spread is the result of the shocking fall in demand due to the coronavirus pandemic and glut of global crude supply hitting the markets all at once. While oil-producing nations have inked a deal to cut output, those cuts will not come quickly enough to avoid a massive clog in the next couple of weeks. With U.S. oil prices trading in negative territory, that means sellers have to pay buyers for the first time ever to take oil futures. Futures traders, who would normally be able to shift from the expiring contract to the next, were finding very few buyers for the expiring May contract.

The volume of oil held in U.S. storage, especially at the Cushing delivery point for the U.S. West Texas Intermediate (WTI) contract in Oklahoma, is rising as refiners throttle back activity in the face of weak demand. Oil in floating tanker storage is also estimated at a record 160 million barrels. The mood in other markets was also cautious as the first-quarter earnings season gets underway. The German economy is in severe recession and recovery is unlikely to be quick, given that many coronavirus-related restrictions could stay in place for an extended period. Japanese exports declined the most in nearly four years in March as U.S.-bound shipments, including cars, fell at their fastest rate since 2011.

The Russian energy ministry has told domestic oil producers to reduce oil output by around 20% from their average February levels, which would bring Moscow in line with its commitment under a global deal. OPEC+ agreed to cut their combined oil output by 9.7 million barrels per day (bpd) in May and June in order to combat oversupply triggered by the coronavirus crisis. Under the deal, Moscow has to cut its oil production by 2.5 million bpd from May and using the reference level of 11 million bpd - the figure which includes crude oil only and exempts gas condensate, a type of light oil.

Rystad Energy had been projecting an increase in US shale production of 650,000 bpd by the end of this year, but recent developments have caused it to take a more pessimistic view of what’s to come in the shale industry. As a result, Rystad has lowered its projected change in output for the year by 2.15 million barrels per day. Additionally, it cautioned that this figure may slide even further. So instead of shale production increasing by 650,000 bpd, Rystad is now expecting production to decrease by 1.5 million bpd by the end of 2020.

Tanker owners could be hit with lower demand for their vessels in a few weeks’ time. Amidst an oversupplied oil market and expectations of production cuts and consequent oil price hikes, the large contango effect has made profitable several storage plays during the past couple of months, occupying a lot of ships as a result, while in addition to that, several countries decided to increase to the maximum their strategic petroleum reserves (e.g. the US SPR already has 634 million barrels in storage vs. a total capacity of 713 million barrels).

OK Lim, the founder of the Singapore oil trader Hin Leong, is said to have instructed the company’s accounts team not to disclose around $800 million in futures trading losses. Hin Leong’s financial difficulties first came to public notice when it was reported that a number of financial institutions had refused to issue new letters of credit to the company because it could no longer service its debts. It was also reported that subsidiary company Ocean Bunkering Services Pte Ltd (OBS) planned to put bunker supply operations on hold. Hin Leong and subsidiary Ocean Tankers have now filed for court protection from creditors.

The European Sea Ports Organisation (ESPO) and the Federation of European Private Port Operators (FEPORT) have spoken out against the European Commission’s proposal for a network of ports providing ‘fast-track’ crew changes – arguing that Member States should facilitate crew changes in all of their seaports. As per statement, neither technically nor economically is it feasible to restrict crew changes to only a select group of main ports.

We expect bunker prices may react downward today in a range of minus 10-25 USD.