MABUX: Bunker market this morning, May 13

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 irregular changes on May 12:

380 HSFO: USD/MT 229.46 (+0.57)
VLSFO: USD/MT 260.00 (-2.00)
MGO: USD/MT 324.44 (-2.70)

Meantime, world oil indexes rose on May.12 boosted by an unexpected commitment from Saudi Arabia to deepen production cuts in June in a bid to help drain the glut in the global market.

Brent for July settlement increased by $0.35 to $29.98 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for June delivery rose by $1.64 to $25.78 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $4.20 to WTI. Gasoil for May delivery gained $10.00.

Today morning global oil indexes have turned back to slight downward trend.

Saudi Arabia said it would cut production by a further 1 million barrels per day (bpd) in June, slashing its total production to 7.5 million bpd, down nearly 40% from April. The United Arab Emirates and Kuwait committed to cut production by another 180,000 bpd in total. Kazakhstan has also ordered producers in large and mid-sized oil fields including Tengiz and Kashagan to cut oil output by around 22% in the May to June period. The cuts, combined with the world's biggest economies relaxing coronavirus restrictions and stoking a gradual recovery in fuel demand, are expected to ease pressure on crude storage capacity. However, in the wake of new outbreaks of the coronavirus, including in China and South Korea, the market is wary of a second wave of COVID-19 cases spurring renewed lockdowns.

Iraq’s total crude output, including flows from the semiautonomous Kurdish region, remained nearly steady in April as OPEC’s second largest oil producer did not boost production despite expiry of the old OPEC+ oil production cuts in March. Oil production in April was at 4.48 million bpd, compared with 4.5 million bpd in March, even as some of its OPEC allies boosted output to record levels that month. April exports fell to 3.853 million bpd from 3.869 million bpd in March. Iraq took the biggest hit to production for OPEC members in April, losing 110,000 bpd as low fuel demand and a lack of product storage space forced its refineries to severely lower crude runs.

The Covid-19 pandemic has caused the largest horizontal rig count collapse ever recorded in the US. As per Rystad Energy, the total horizontal oil rig count fell below 270 rigs last week, a 57% decline from the peak of 624 rigs seen in the middle of March 2020. Horizontal gas drilling was down to 70 rigs last week, which is 54% below the previous peak seen in June 2019. The magnitude of the decline in horizontal oil drilling makes this downturn even more unique, compared to the previous downturn of 2015-2016, where declines all the way from the peak to the trough reached around 53% to 54%.

Meantime, some drillers in the biggest North American oil field are reopening wells shut in response to the pandemic-driven price collapse. Earlier American drillers have disclosed plans to halt more than 600,000 barrels of daily output through the end of next month.  The reopening of wells shut for as little as a few weeks may undermine U.S. President Donald Trump’s pledge to assist a coalition of OPEC and allied oil producers like Russia in taming a global gut. Trump, for his part, indicated U.S. output could be trimmed by 2 million barrels a day, albeit by market attrition rather than government-imposed quotas.

The American Petroleum Institute (API) estimated on May 12 another large crude oil inventory build, of 7.58 million barrels for the week ending May 8 even as several U.S. states begin the slow process of reopening certain segments of their battered economies. This time inventory build was expected to be just 4.147 million barrels--less than half of the weekly inventory builds we’ve seen over the past few weeks. In the previous week, the API estimated a large build in crude oil inventories of 8.440 million barrels, while the EIA’s estimates were for a significantly smaller build of 4.6 million barrels for that week.

About 70 laden VLCCs remain stationary for at least 4 weeks. Conditions for floating storage are favourable once again due to a massive imbalance between oil supply and demand. 20 of 70 tankers have international crude on board, 31 are Iranian (NITC) tankers, whilst the remaining VLCCs are involved in products storage, mainly dirty petroleum products around the Singapore area. In addition to these numbers, there are also 15 converted VLCCs (now FSOs) in permanent crude and products storage located around Indonesia and Malaysia.

The Singapore High Court held on May 12 a hearing over Ocean Tankers’ application (the shipping subsidiary of the financially-troubled Singaporean oil trader Hin Leong)
 to be placed under the management of a court-appointed supervisor. That development follows the disclosure last month that a number of financial institutions had refused to issue new letters of credit to Hin Leong because it could no longer service its debts. As many as 10 financial institutions, including HSBC Holdings, DBS Group Holdings and OCBC Bank, are understood to have a combined exposure to Hin Leong of at least $3 billion.

We expect global bunker prices may demonstrate slight upward evolution today in a range of plus 3-10 USD.