MABUX: Bunker market this morning, May 15

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 insignificant irregular changes on May 14:

380 HSFO: USD/MT 229.51 (+0.62)
VLSFO: USD/MT 260.00 (0.00)
MGO: USD/MT 328.20 (-0.69)

Meantime, world oil indexes rose on May 14 after a drop in U.S. crude stocks and an IEA forecast for lower global stockpiles in the second half.

Brent for July settlement increased by $1.94 to $31.13 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for June delivery rose by $2.27 to $27.56 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $3.57 to WTI. Gasoil for June delivery gained $10.00.

Today morning global oil indexes continue slight upward evolution.

Crude oil traders expect the market to be closer to balance in the next few months as production cuts are implemented and the global transport system emerges from a coronavirus lockdown. Futures prices and swaps linked to physical prices show the market has now moved through the worst of the crisis caused by the volume war between Saudi Arabia and Russia and the pandemic-driven collapse in consumption. By the middle of last month, global production was exceeding consumption by as much as 30 million barrels per day (bpd), causing the volume of oil in storage to surge. The main risk comes from a premature increase in production, if either U.S. shale firms or members of OPEC+ try to boost output before consumption and stocks return closer to normal.

The International Energy Agency (IEA) said, oil producers may need to exert more efforts to lessen the coronavirus impact on the oil market because demand is not expected to recover quickly, given the amount of surplus and large volume of crude held in floating storage. The IEA boosted its estimates for global oil demand in the second quarter by 3.2 million barrels a day, to 79.3 million. Yet consumption remains on track for a loss of almost 20 million barrels a day in the quarter, or roughly 20%, from the same period in 2019 due to the pandemic. For 2020 as a whole, the demand forecast was pushed up by 700,000 barrels a day, but it still remains on track for an annual plunge of 8.6 million a day, or about 9%. The IEA also expects crude stockpiles to shrink by around 5.5 million barrels per day in the second half.
The US, Saudi Arabia and Russia are going to continue to be major producers and China, India and Middle East to be major demand centers for oil growth.

Goldman Sachs in turn expects, improving global oil demand and faster-than-expected production curtailments from outside the OPEC+ pact are set to push the oil market into deficit next month. The investment bank said, that there is still little room for an oil price rally in the near term because of the still sizeable oversupply of crude oil and refined products. At the same time, demand is improving from April lows and is limiting the downside for oil prices. The bank kept its forecasts for oil prices for the summer, with Brent Crude seen at $30 a barrel, and WTI Crude at $28 per barrel, due to the still uncertain pace of global demand recovery.

Saudi Arabia stood by its pledge to curtail oil output under the OPEC+ deal, reducing shipments to the prized Asian market. Saudi Aramco cut contractual volumes for June loading to at least seven Asian customers. Three other regional buyers received what they asked for. The reductions were expected as Saudi Arabia announced a few days ago that it would cut production by a further 1 million barrels a day on top of what it had already committed to under the OPEC+ agreement. It also followed a move by fellow OPEC member Iraq to curb supplies to Asia.

Meantime, Iraq has agreed with oil majors operating its five giant southern oilfields to cut 300,000 bpd. It will also lower production from other fields which it operates alone, bringing the total reductions to slightly below 700,000 bpd. The country’s oil output cut target under the OPEC+ supply reduction pact is 1.06 million bpd for May and June. The agreement with the oil majors came after what Iraqi officials described as “a defensive position” by the international oil companies developing Iraq’s southern fields. The refusal by the oil majors to cut more oil indicates the difficulties which are facing Iraq to fully comply with the OPEC+ crude supply reduction pact.

U.S. oil production continues to decline as drillers shut in wells and cut back spending. Output has already declined by 1.1 million barrels per day (bpd), and more losses are likely. New data from Rystad Energy predicts U.S. oil production declines of roughly 2 million bpd by the end of June. The sharp decline in rigs, drilling and completion activity means that the steep decline rates in shale drilling will overwhelm what little new production comes online. Standard Chartered said that if activity were to remain stuck at current levels, U.S. production in the five main shale basins would fall by 2.89 million bpd by the end of 2020.

We expect global bunker prices may rise today in a range of plus 10-18 USD.