MABUX: Bunker market this morning, Apr 28

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 fell on April 27:

380 HSFO: USD/MT 208.11 (-1.79)
VLSFO: USD/MT 235.00 (-6.00)
MGO: USD/MT 314.95 (-12.91)

Meantime, world oil indexes declined on Apr. 27 on worries about limited capacity to store crude worldwide and expectations that fuel demand may only recover slowly as coronavirus pandemic restrictions are gradually eased.

Brent for June settlement decreased by $1.45 to $19.99 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for June fell by $4.16 to $16.50 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $7.21 to WTI. Gasoil for May delivery increased by $14.25.

Today morning oil indexes continue to decrease.

The main concern is that there is nowhere to store all the oil that is not being consumed due to the drop in global economic activity amid restrictions imposed around the world to curb the spread of the new coronavirus. Even with OPEC+ having agreed record output cuts of nearly 10 million barrels per day (bpd) from May 1, that volume is not nearly enough to offset a drop in demand of around 30 million bpd due to COVID-19 restrictions.

U.S. crude inventories are poised to surpass in two weeks the 2017 record highs of 535 million barrels, if their average build rate of 16 million bpd over the past four weeks is maintained. The Cushing, Oklahoma delivery point for maturing contracts of WTI crude could be filled in under four weeks, if the average 4.5 million build over the last two weeks becomes a trend. U.S. production, meanwhile, has fallen by less than 1 million barrels daily over the past six weeks, sliding from a record high of 13.1 million daily in mid-March to 12.2 million bpd last week. In addition, floating crude oil storage is at an all-time high of 160 million barrels. Goldman Sachs  says the global market is on track to test storage capacity limits in as little as three weeks, requiring the shut-in of nearly 20% of world oil output.

At the same time, Italy, the country worst impacted by the coronavirus prior to the United States, is looking to ease lockdowns from May 4 after an apparent peak in infections and deaths from the outbreak. New York, the U.S. epicenter of the pandemic, is also looking to reopen parts of its economy, following at least half a dozen of the 50 American states that have relaxed measures.

While we're starting to see COVID-19 cases ease and some countries ease restrictions, those initial moves look fairly tentative. The market's seems to the view there's going to be no quick recovery in demand. As a result of the collapse in demand, global storage onshore is estimated to be about 85% full as of last week. In a sign of the energy industry's desperation for places to store petroleum, oil traders are resorting to hiring expensive U.S. vessels to store gasoline or ship fuel overseas.

At the same time, the United States Oil Fund, an exchange-traded fund known as USO and popular with retail investors of oil, accelerated the risk-off in crude as it unexpectedly moved to sell all its holdings in the most active West Texas Intermediate futures contract. That triggered a massive swing in the price relationship between WTI's front-month June and nearby July contracts.

The market is awaiting production cuts from OPEC+ which is to begin on Friday. But OPEC’s top producer and the world’s top oil exporter, Saudi Arabia, has already started cutting its oil production ahead of the official start of the new OPEC+ pact. Saudi Aramco has begun cutting oil production from around 12 million bpd, aiming to reach the 8.5 million bpd quota under the OPEC+ production cut deal intended to remove a total of 9.7 million bpd from the market in May and June. Last week, OPEC’s fourth-largest producer, Kuwait, said that it had already started to reduce crude oil supply to international markets. Oman will also cut oil production from its six largest producing blocks by 23% from their October 2018 baseline levels of 883,000 b/d to adhere with the OPEC+ production cuts.

Russia, however, is preparing to significantly reduce the oil supply to the market from its Baltic and Black Sea ports—to the lowest in two decades in May. While Russia is likely to struggle to hit its reduction target, the slashed exports from the European seaports suggest that Moscow will be limiting the oil supply to international markets at a time when global inventories of crude and gasoline threaten to overflow amid the massive demand collapse in the pandemic.

We expect bunker prices continue to decline today: 6-8 USD down for IFO, 10-15 USD down for MGO.