MABUX: Bunker market this morning, June 04

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, VLSFO and MGO (Gasoil) in the main world hubs) continued firm upward trend on Jun.03:

380 HSFO: USD/MT 273.68 (+7.94)
VLSFO: USD/MT 314.00 (+5.00)
MGO: USD/MT 388.31 (+8.04)

Meantime, world oil indexes changed irregular on Jun.03, as doubts emerged about the timing and scale of a potential extension to the pact between OPEC and its allies to cut crude supplies.

Brent for August settlement increased by $0.22 to $39.79 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for July delivery rose by $0.48 to $37.29 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $2.50 to WTI. Gasoil for June delivery lost $6.75.

Today morning global oil indexes have turned into moderate downward trend.

The Organization of the Petroleum Exporting Countries and others including Russia may extend production cuts of 9.7 million barrels per day (bpd), or about 10% of global output, into July or August. Some unofficial reports said, that Saudi Arabia and Russia have already agreed a preliminary deal to extend existing record oil production cuts by one month while raising pressure on countries with poor compliance to deepen their output cuts. A meeting of the grouping known as OPEC+ is expected to be held online on Jun.04. The cuts are currently due to run through May and June, scaling back to a reduction of 7.7 million bpd from July to December, but Saudi Arabia has been pushing to keep the deeper cuts in place for longer.

Iraq said, it will further reduce production and remains committed to the OPEC+ pact. Iraq, which was the least compliant member of the OPEC+ pact in the previous agreements, was slow to begin the new round of cuts, too. A week after the new agreement entered into force on May 1, Iraq was still negotiating with oil majors about which oilfields would need to cut production. As part of the OPEC+ deal, Iraq needs to cut around 1 million barrels per day (bpd) of its production, which stood at 4.585 million bpd in March 2020.

The Trump administration believes ahead of an expected OPEC+ meeting this week that major oil producers such as Saudi Arabia and Russia will honor their pledges to cut crude production and will not damage the global economy by changing course. In early April, when Saudi Arabia and Russia boosted oil output in a war for market share during the height of the coronavirus pandemic, the U.S. administration took an aggressive stance. At the moment president Trump is in contact with both Saudi Arabia and Russia in the attempt to coordinate the balance on the market. Trump and Russian President Vladimir Putin discussed the OPEC+ oil output cuts and other issues including arms control in a call on Jun.01.

China's oil demand has recovered to more than 90% of the levels seen before the coronavirus pandemic struck early this year. Easing travel restrictions and stimulus packages aimed at resuscitating economies could accelerate global oil demand in the second half of 2020. Wood Mackenzie expects China's oil consumption in the second half to grow 2.3% to 13.6 million barrels per day (bpd) from the same period last year, driven by increased transportation and industrial use. In contrast, the International Energy Agency (IEA) said in its May report that China's demand will fall 5% on year to 13.2 million bpd in the second half. Even so, there is strong consensus that both gasoline and diesel use are expected to accelerate as more people and businesses boost movement.

In Europe gas suppliers may have to cut flows to prevent natural gas prices from plunging further. Demand for natural gas is still very weak as major economies in Europe are emerging from lockdowns while gas in storage across the continent is at a record high for this time of the year. The natural gas glut has depressed the prices at key European hubs such as the Dutch TTF benchmark. Prices didn’t move much even after the biggest gas exporter to the continent, Gazprom, saw its flows on a key pipeline fall to zero last week.

A day after the American Petroleum Institute surprised market yet again with a crude oil inventory draw, pushing prices up, the Energy Information Administration also reported an inventory decline, at 2.1 million barrels for the week to May 29. At 532.3 million barrels crude oil inventories were 12 percent above the five-year average for this time of the year. Forecasts had expected an inventory build of 3.3 million barrels, after last week the EIA reported a substantial inventory increase, at 7.9 million barrels, for the third week of May. Last week, gasoline inventories rose, however, by 2.8 million barrels.

We expect IFO bunker prices may gain 1-3 USD today while MGO prices may fall by 5-8 USD.