MABUX: Bunker market this morning, July 01

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 increased on June 30:

380 HSFO: USD/MT 288.36 (+3.36)
VLSFO: USD/MT 342.00 (+3.00)
MGO: USD/MT 415.27 (+3.94)

Meantime, world oil indexes demonstrated irregular changes on June 30.

Brent for September settlement decreased by $0.56 to $41.15 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for August fell by $0.43 to $39.27 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $1.88 to WTI. Gasoil for July delivery added $4.25.

Today morning oil indexes increase after data showed crude inventories in the United States fell much more than expected, suggesting demand is improving even as the coronavirus outbreak spreads around the world.

According to the American Petroleum Institute (API), crude inventories dropped by 8.2 million barrels to 537 million barrels, against forecasts for a draw of 710,000 barrels. Official inventory data from the U.S. government's Energy Information Administration is due out later today.

Also supporting prices was a drop in output from OPEC to the lowest in two decades in June. The 13-member grouping produced an average of 22.62 million barrels per day (bpd) in June after they agreed to cut output. It is down 1.92 million bpd from May's revised figure. The fall in output means that OPEC over-complied with the deal in June, with compliance coming in at 107%. The over-compliance is the result of additional cuts by Saudi Arabia, the United Arab Emirates and Kuwait. Those producers agreed to more cuts during June than other OPEC members. It is likely that compliance will slip again in July, unless Iraq and Nigeria will demonstrate a significant improvement in compliance.

At the same time, both Saudi Aramco and the UAE’s national oil company were looking at raising their official selling prices for August, something that reflects confidence that the physical market will have returned to balance by then.

Prices for later this year are likely to be capped, as the world is awash with oil after the coronavirus caused demand for fuel to drop by around a third. Reuters indicated that oil prices will consolidate at around $40 a barrel this year, with a recovery potentially picking up in the fourth quarter. The coronavirus continues to spread around the world with ever increasing rates of infection. Cases now total more than 10 million with more than half a million people dying after catching COVID-19.

The outlook for demand has been clouded further in the U.S. by the reintroduction of more restrictive public health measures in parts of the country. Various counties in California and Florida have closed their beaches for the July 4 weekend due to the sharp rise in new infections of Covid-19 over the last two weeks. The states of Kansas and Oregon, meanwhile, have imposed a requirement to wear masks in indoor public spaces.

Oil prices were also pressured by reports that Libya may soon be able to resume crude exports, after a hiatus of six months caused by the country’s civil war. Libya’s national oil company had complained last week about Russian mercenaries blockading its biggest field.

We expect bunker prices may demonstrate irregular changes today: 1-3 USD down for IFO, 2-4 USD up for MGO.