MABUX: Bunker market this morning, May 05

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) changed irregular with no firm trend on May.04:

380 HSFO: USD/MT 215.56 (+2.20)
VLSFO: USD/MT 241.00 (+2.00)
MGO: USD/MT 318.80 (-2.05)

Meantime, world oil indexes changed also irregular on May.04 as countries started to ease coronavirus lockdowns, though a fresh spat between the United States and China over the origin of the virus weighed on prices.

Brent for June settlement increased by $0.76 to $27.20 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for June delivery rose by $0.61 to $20.39 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $6.81 to WTI. Gasoil for May delivery lost $9.25.

Today morning global oil indexes continue firm upward evolution.

Adding to U.S. President Donald Trump’s threat last week to impose tariffs on China, Secretary of State Mike Pompeo said on May 03 there was a significant amount of evidence that the new coronavirus emerged from a Chinese laboratory.

Oil and fuel trading have been more volatile in recent days. The market is overwhelmed by a growing supply glut as demand craters amid governments orders for people to stay at home in order to stop the spread of the coronavirus. The world’s major oil producers, led by the Organization of the Petroleum Exporting Countries and its allies, attempted to wrest control of spiraling inventories by announcing a collective cut of 9.7 million barrels per day in supply in early April. But those cuts will come too slowly to offset rising inventories.

Rystad Energy reported, the global imbalance between oil supply and demand, which has built to 26.4 million barrels per day (bpd) in April due to the Covid-19 pandemic, is set to halve to 13.6 million bpd in May and fall further to just 6.1 million bpd. However, despite the improvement, the stock build will still overwhelm remaining global storage, which will fill in weeks. Besides, as per Rystad, if sufficient production isn’t shuttered by 19 May 2020 (the expiration of the WTI June 2020 contract), then the potential remains for another WTI price collapse, However, given that most oil futures outside of WTI do not require the buyer to physically take oil delivery, and instead have cash settlement options, the destruction to other benchmarks should be tamer.

Goldman Sachs in turn predicts, that lower crude production due to reduced activity and OPEC+ cuts, coupled with a partial recovery in oil demand, should drive prices higher next year. The Bank raised its 2021 forecast for global benchmark Brent crude prices to $55.63 per barrel from $52.50 earlier and hiked its estimate for U.S. West Texas Intermediate (WTI) crude to $51.38 a barrel from $48.50 previously. The bank also said, that oil production has started to decline quickly from a combination of scaleback in activity, shut-ins and core-OPEC/Russia production cuts. Demand is also beginning to recover from a low base, led by a restarting Chinese economy and inflecting transportation demand in developed market economies.

Redirected Qatari LNG shipments originally destined for Asia have arrived into Europe. Tumbling demand, and force majeure declarations in China and India as a consequence of the coronavirus pandemic have resulted in Qatari production being shipped to European markets instead. Overall LNG imports into Europe’s liquid traded markets — namely France, Spain, Italy, Belgium, the United Kingdom and Netherlands — amounted to 7.2 million mt during April, which is equivalent to 9.939 billion cu m of natural gas once reheated. This represented a 6% rise in receipts on the year, but a slight drop of 3.5% on the month, perhaps signaling that European imports may have peaked for the summer. Qatar’s monthly deliveries to the region have increased by 150% since February, claiming a 30.7% share of exports. The US relinquished its position as top exporter, but nevertheless held on to 23.8% of the market, while Russian production dipped slightly, now holding a 19.9% slice of demand for physical volumes.

Extreme volatility with a dash of oversupply come next year, could be the trigger for the tanker market moving forward, as shipping tries to adjust to the new reality shaped by the pandemic and its economic aftermath. As per some forecasts, over the next few months floating storage is expected to be a feature of the market, while the collapse in demand outstrips global production cuts. At the very least, this will offer a degree of protection to tanker earnings facing a dramatic drop in trading volumes. However, there is also a possibility that storage demand will be greater than the fall in trade. The situation is expected to change dramatically once oil demand and supply conditions move towards a more balanced position.

China’s issuance of a 10 million mt fuel oil export quota for 2020 was expected to tilt regional supply and demand balances. In China, the sale of fuel oil as bunker fuel to ships plying international routes is regarded as a type of export. The quota did not apply to actual fuel oil cargo exports. China typically consumes around 12 million mt/month of bonded marine fuel, which was imported from Singapore and South Korea as Chinese refineries are geared towards producing higher value light oil products. But the market’s dynamics changed this year following the switch in the mainstay bunker fuel to a lower, 0.5% sulfur content. Since then, refiners have started to ramp up supply of fuel oil for bonded bunkering, even before the quota allocations were announced.

We expect IFO bunker prices may rise today by 3-6 USD while MGO prices will change irregular in a range of plus-minus 2-9 USD.