MABUX: Bunker market this morning, May 29

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, VLSFO and MGO (Gasoil) in the main world hubs) fell slightly on May 28:

380 HSFO: USD/MT 254.08 (-6.34)
VLSFO: USD/MT 295.00 (-5.00)
MGO: USD/MT 371.18 (-1.26)

Meantime, world oil indexes in turn changed irregular on May 28, on signs U.S. gasoline demand is rising despite a big surprise build in crude inventories.

Brent for July settlement increased by $0.55 to $35.29 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for July delivery rose by $0.90 to $33.71 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $1.58 to WTI. Gasoil for June delivery lost $5.75.

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 7.9 million barrels from the previous week. At 534.4 million barrels, U.S. crude oil inventories are about 13% above the five-year average for this time of year. This compares with an inventory draw of 5 million barrels a week earlier and analyst expectations for a draw of 2.5 million barrels. Gasoline stockpiles fell unexpectedly, but refiners boosted output.

Morgan Stanley expects Brent crude to trade at $40 a barrel by the end of the year thanks to the recovery in demand, which has taken off faster than the Bank expected. The Bank also expects that thanks to production cuts in OPEC and outside it, the oil market could swing into an undersupply in the last quarter of the year, to persist during the first quarter of 2021 as well. The size of the supply shortage would be about 4 to 6 million bpd.

Prices have rebounded strongly this month, as the Organization of the Petroleum Exporting Countries and producers including Russia, a grouping referred to as OPEC+, cut their output by nearly 10 million barrels per day in May and then also June. Saudi Arabia and some other OPEC oil producers are also considering extending these record output cuts until the end of 2020, in the lead-up to its June 9 meeting, but doubts remain over Russia’s support given its desperate need for capital in the wake of the damage done to its economy in the wake of the coronavirus outbreak.

According to the latest analysis, China’s oil demand will recover to 13 million barrels per day (b/d) in Q2 2020, a 16.3% jump compared to Q1 this year. However, comparing year-on-year (YoY), Q2 2020 demand is about 2.5% below Q2 2019. The pace of recovery differs among oil products. China’s demand for gasoline and diesel are expected to increase YoY from Q3 2020 onwards. Overall, China’s oil demand is expected to rise a modest 2.3% to 13.6 million b/d for H2 2020, compared to H2 2019.

In the meantime, China’s low-sulphur marine fuel exports rose by a third in April compared with March to the highest level yet after it waived export taxes for domestic refiners to meet shipping demand. Chinese refiners began exporting in January very low sulphur fuel oil (VLSFO) with a maximum sulphur content of 0.5% to comply with emission rules for ships from the International Maritime Organization. April exports of the ship fuel reached nearly 1.43 million tonnes, up from 1.07 million tonnes in March and just below a combined 1.56 million tonnes for the first two months. Exports in the first four months reached just over 4 million tonnes, the data showed. Marine fuel export data has been collected by tracking Chinese refiners’ bunker sales from bonded storage at major Chinese ports, such as Zhoushan and Qingdao in east China and Dalian in the northeast.

Two U.S. senators said they could draft further sanctions on Russia's Nord Stream 2 natural gas pipeline if Moscow finishes laying pipes for the project. U.S. sanctions legislation in December halted work by Swiss-Dutch company Allseas on the pipeline that aims to boost Russia's gas exports under the Baltic Sea to Germany. Now a Russian pipe-laying vessel aims to finish the remaining 100 miles (160 km) of the project, led by state gas company Gazprom. The pipeline, aimed at bypassing Ukraine, could be launched by the end of 2020 or early next year.

The government of Ukraine approved on May 27 a plan to import liquefied natural gas (LNG) from the United States. Under the memorandum approved by the government, Ukraine will be importing at least 5.5 billion cubic meters of LNG annually, while the seller will be Louisiana Natural Gas Exports Inc. Besides, Ukraine and Poland, which also seeks diversified energy supplies, signed in August last year a trilateral memorandum of cooperation with the United States to enhance the regional security of natural gas supply.

We expect IFO bunker prices may gain 3-7 USD today while MGO may lose 5-12 USD.