MABUX: Bunker market this morning, Aug 28

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) rose slightly on Aug.27:

380 HSFO: USD/MT 315.50 (+2.23)
VLSFO: USD/MT 366.00 (0.00)
MGO: USD/MT 444.32 (+1.34)

Meantime, world oil indexes fell on Aug.27 as a massive hurricane in the Gulf of Mexico made landfall in the centre of the U.S. oil industry, forcing oil rigs and refineries to shut down.

Brent for October settlement decreased by $0.55 to $45.09 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for October delivery fell by $0.35 to $43.04 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $2.05 to WTI. Gasoil for September delivery lost $8.50 – $362.50.

This morning, global oil indexes do not have any firm trend so far and change irregular.

Hurricane Laura hit Louisiana on Aug., damaging buildings, knocking down trees and cutting power to more than 400,000 people in Louisiana and Texas. Its storm surge was less than predicted, sparing inland plants from feared flooding. Oil producers had shut 1.56 million barrels per day (bpd) of crude output, or 84% of the Gulf of Mexico’s production, evacuating 310 offshore facilities. At the same time, refiners that convert nearly 2.33 million bpd of crude oil into fuel, and account for about 12% of U.S. processing, halted operations.

The growth in global oil demand is expected to taper off, with global crude oil demand plateauing just below pre-pandemic levels. According to IHS Markit, global oil demand, currently at 89% of pre-Covid-19 levels and rising, is expected to level off at between 92% to 95% of demand prior to the pandemic. Therefore, IHS Markit expects demand growth to wane and plateau through the first quarter of 2021, with the main cause for the pause expected to be travel – especially that of air and commuting to work – remaining subdued until the spread of Covid-19 is contained and until vaccines are widely available.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 4.7 million barrels from the previous week. At 507.8 million barrels, U.S. crude oil inventories are about 15% above the five-year average for this time of year. Forecasts had expected an inventory draw of 3.833 million barrels for the week to August 21. Refineries processed 14.7 million bpd of crude last week, after run rates fell to 14.5 million bpd during the previous week. This week the numbers would likely be even lower as hurricane Laura forced the shutdown of several facilities on the Gulf Coast.

The U.S. Administration’s push to reduce Iraq’s dependence on energy imports from Iran—including electricity and natural gas—could see rapprochement and closer energy cooperation between Iraq, the only Arab country in the Gulf region that is not a member of the Gulf Cooperation Council (GCC), and Iran’s archrival in the region and a key U.S. ally, Saudi Arabia.  Iraq agreed last week to work, with help from the United States, on connecting Iraq’s electricity grid to Saudi Arabia’s, and possibly Kuwait’s. At the moment major Iraqi power plants are dependent on Iranian natural gas supply, and Iraq also imports electricity from Iran, as Baghdad’s power generation is not enough to ensure domestic supply.  

Four oil tankers have been stripped of their flags following an NBC News investigation into allegations they secretly transported Iranian oil in defiance of crippling U.S. sanctions imposed by President Donald Trump. The four ships all made covert visits to Iranian waters this year where they collectively picked up millions of barrels of oil. Five days after the report was broadcast, the St. Kitts & Nevis Ship Registry decided it would no longer allow the tankers to fly under its flag.  Under maritime law, seagoing ships must fly the flag of a nation state. Vessels that have been stripped of their flag are unable to carry out basic functions like sailing into port or registering for maritime insurance.

The pandemic-led weak projections for economic growth will derail US LNG exports in full-year 2020 with the country also losing ground in the long term due to major delays in liquefaction projects. The US is currently the third-largest global LNG exporter with six operational LNG export terminals aggregating 62 mtpa of liquefaction capacity and another 41 mtpa capacity under construction. Existing LNG production capacity in the US has been impacted by the pandemic with over 110 LNG cargoes being cancelled by Asian and European customers during June-August due to the low LNG spot price which narrowed the US-Asia and US-Europe price arbitrage. Moreover, major US LNG importers – Japan, South Korea and Taiwan – have seen their LNG demand dwindling, while US-China LNG trade has not been able to pick up as some would have hoped.

We expect IFO bunker prices may go downward today by 1-3 USD, MGO prices may fall by 7-10 USD.