MABUX: Bunker market this morning, May 07

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) demonstrated firm upward trend on May.06:

380 HSFO: USD/MT 226.01 (+4.99)
VLSFO: USD/MT 259.00 (+13.00)
MGO: USD/MT 337.23 (+14.35)

Meantime, world oil indexes fell on May.06 as a report showing rise in U.S. inventories offset hopes for a recovery in demand as some countries ease coronavirus lockdowns.

Brent for June settlement decreased by $1.25 to $29.72 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for June delivery fell by $0.57 to $23.99 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $5.73 to WTI. Gasoil for May delivery lost $13.75.

Today morning global oil indexes do not have any firm trend so far.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 4.6 million barrels for the week to April 24, after a 9-million-barrel build the previous week. This compared with a build of 8.44 million barrels, reported by the American Petroleum Institute a day earlier and analyst expectations of a build of 8.125 million barrels. At 532.2 million barrels, U.S. crude oil inventories are about 12% above the five year average for this time of year. In distillate fuels, the authority reported a hefty inventory rise of 9.5 million barrels for last week, versus an increase of 5.1 million barrels for the prior week. Distillate fuel production averaged 5.1 million bpd last week, compared with 5 million bpd a week earlier.

Some countries have eased coronavirus lockdowns recently. Italy, Spain, Nigeria and India, as well as some U.S. states began allowing some people to go back to work and opened up construction sites, parks and libraries.  Germany’s federal government and 16 states have agreed on ways to ease the lockdown. The easing of lockdowns should lead to a recovery in global oil demand, which in April was expected to collapse by at least 20%, an unprecedented drop, as governments told people to stay at home.

The OPEC+ alliance has agreed to cut production by 9.7 million barrels of oil per day (bpd), or 10% of total global supply, in May and June. Much of the compliance would depend on the performance of non-OPEC members, which have a sketchy compliance track record. The 10 countries, including Mexico and Kazakhstan, have agreed to assume around 40% of the total cuts. Russia – the non-official leader of non-OPEC group, has pledged to reduce production by a fifth, or 2 million bpd, to 8.5 million bpd, levels last seen in the early 2000s This is rather ambitious task, considering Moscow has struggled to comply even with much smaller targets in the past.

UBS expects a pick-up in oil demand as virus-hit economies relax lockdowns and travel restrictions ease this month, with production to be subdued on the backdrop of current low prices and aggressive capital spending cuts by oil and gas producers. As per UBS forecast, the oil market to be balanced in third quarter and undersupplied in fourth quarter, and Brent to recover to $43 per barrel by end-2020 and to $55 per barrel by mid-2021. The Bank also expects global oil supply to contract by nearly 6 million bpd year on year in the second quarter, citing forced production shut-ins in North and South America as current low price environment fails to cover operating costs.

Rystad Energy in turn said, the current cuts in exploration and production will have a long-lasting impact on the global oil market, with oil prices spiking to above $68 a barrel in 2025, when there could be a supply deficit of 5 million barrels per day. As all oil companies moved into survival mode after the oil price crash in March, investments in exploration and new production are set to be delayed because companies are looking to preserve cash and avoid cutting dividends. So, global investments and project sanctioning activity are already drying up this year.

Venezuela’s oil exports ticked higher in April after falling in March to their lowest average in seven months, helped by new trading partners that were re-selling cargoes in Asia. Venezuela shipped 31 cargoes of crude and refined products last month carrying an average of 848,500 barrels per day (bpd), a small increase from the 814,000 bpd the previous month. China last month was again the largest direct destination for the crude with about a quarter, or 191,000 bpd. Malaysia, an active hub for trans-shipment and blending of Venezuelan oil, received about 290,000 bpd. India, one of the top three destinations for Venezuelan oil this year, reduced its share of exports to 8% of the total, while Europe took 16%.

We expect IFO bunker prices may lose today 4-7 USD while MGO prices will fall by 12-20 USD.