MABUX: Bunker market this morning, June 02

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, VLSFO and MGO (Gasoil) in the main world hubs) rose slightly on June 01:

380 HSFO: USD/MT 259.56 (+6.42)
VLSFO: USD/MT 301.00 (+7.00)
MGO: USD/MT 374.24 (+6.13)

Meantime, world oil indexes changed irregular on Jun.01, with the Organization of the Petroleum Exporting Countries (OPEC) considering meeting as soon as this week to discuss whether to extend record production cuts beyond end-June.

Brent for August settlement increased by $2.99 to $38.32 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for July delivery fell by $0.05 to $35.44 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $2.88 to WTI. Gasoil for June delivery gained $10.00.

Today morning global oil indexes continue moderate upward trend.

Algeria, which currently holds the OPEC presidency, has proposed that an OPEC+ meeting planned for June 9-10 be brought forward to facilitate oil sales for countries such as Saudi Arabia, Iraq and Kuwait. Russia has no objection to the meeting being brought forward to June 4.

Meantime, the cartel failed to fully comply with its agreed-upon quotas in May. Nigeria and Iraq did not live up to their commitments under the massive production cut deal that promised to take 9.7 million barrels of oil production per day out of the oversupplied market. Overall, the group cut just 5.91 million bpd from April levels, producing 24.77 million bpd. This is 4.48 million bpd of the promised reduction, or 74% compliant. One of the reasons for OPEC’s failure to bring production down to promised levels is due to contractual obligations with buyers given the short timeframe between the date the agreement was made and its implementation. Besides, the sharp cuts in May, are watered down by the fact that several OPEC members, including Kuwait, the UAE, and Saudi Arabia, produced record-high volumes in April, which flooded the market with cheap oil.

Rystad Energy published new forecast saying oil demand will decrease of 11.5% for 2020, or 11.4 million barrels per day (bpd) year-on-year. Total oil demand in 2019 was approximately 99.5 million bpd, which is now projected to fall to 88.1 million bpd in 2020.  June demand is forecast at 84 million bpd, down by 14.5% year-on-year. Further ahead, total oil demand in 2021 is expected to average at 96.3 million bpd.

U.S. crude oil production fell 28,000 bpd, or 0.2%, in March to 12.716 million barrels per day, the lowest level since October. U.S. crude production is being throttled back in response to oversupply and low demand due to the coronavirus pandemic. Oil output fell in most states, and in federal waters in the Gulf of Mexico, but rose in Texas, the largest-producing state. Output in Texas climbed 1.2% to 5.42 million bpd in March.

Iran said it will continue fuel shipments to Venezuela if Caracas requests more supplies, despite Washington's criticism of the trade between the two nations, which are both under U.S. sanctions. Defying U.S. threats, Iran has sent a flotilla of five tankers of fuel to the South American oil-producing nation, which is suffering from a gasoline shortage. Seeking to deter further shipments of Iranian fuel to Venezuela, Washington is monitoring the supply. It has warned governments, seaports, shippers and insurers that they could face measures if they aid the tankers.

Global bunker fuel demand is likely to fall by 5%-10% year on year in 2020 as the coronavirus pandemic slows trade and impedes shipping and ship crew movements in many countries. Initial fears about the escalation of bunker fuel quality issues due to the widespread adoption of LSFOs and blended fuels have been mostly quelled. While there were some bunker fuel quality issues related to sedimentation as well as pour point at the start of the year, the impact has not been that significant. The HSFO-LSFO spread has narrowed, reflecting the drop in crude oil prices. Scrubber prospects have received a setback and installations are getting delayed as many shipyards in China and South Korea are still close.

We expect IFO bunker prices may gain 4-10 USD today while MGO prices may change irregular in a range of plus-minus 5-8 USD.