MABUX: Bunker market this morning, Sept 17

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) demonstrated firm upward trend on September 16:

380 HSFO: USD/MT 291.76 (+3.81)
VLSFO: USD/MT 336.00 (+4.00)
MGO: USD/MT 407.52 (+1.63)

Meantime, world oil indexes continued upward evolution on Sep.16 as a hurricane closed U.S. offshore oil and gas production and an industry report showed U.S. crude inventories decreased.

Brent for November settlement rose by $0.22 to $42.22 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for October delivery increased by $1.88 to $40.16 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $2.06 to WTI. Gasoil for October delivery gained $5.25 – $325.25.

This morning, global oil indexes have turned into slight downward movement.

A hurricane in the U.S. disrupted offshore oil and gas production. More than 25% of U.S. offshore oil and gas output was shut and export ports were closed as Hurricane Sally sat just off the U.S. Gulf Coast. Current estimate for the total outage associated with the Sally weather system is between 3 million and 6 million barrels of oil over approximately 11 days.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 4.4 million barrels from the previous week. At 496.0 million barrels, U.S. crude oil inventories are about 14% above the five year average for this time of year. Forecasts had expected an inventory build of a bit over 2 million barrels for the period, after last week the EIA reported a build of the same amount for the first week of September. Driving season has been weak this year, unsurprisingly for many, although some still hoped that it would lead to major drawdowns in both crude oil and gasoline inventories in the world’s largest oil consumer. Once it ended, more builds can reasonably be expected.

OPEC and allies such as Russia are unlikely to announce further curbs to oil output this week despite a price drop, sources told Reuters, and will extend the period for countries like Iraq and Nigeria to compensate for earlier overproduction. OPEC and allies, a group known as OPEC+, have been reducing production since May to support oil prices after global demand plunged in the wake of the coronavirus pandemic. In the latest round of cuts, OPEC+ has been reducing output by 7.7 million barrels per day or around 8% of global demand, while asking Iraq and others to pump below their quota in September to compensate for overproduction in May to July. A virtual meeting on Sep.17, known as the joint ministerial monitoring committee (JMMC), will likely extend the compensation period into October and November to allow Iraq and others to catch up with their targets.

Meantime, Iran has raised oil production from the oilfields in its southwest it shares with Iraq to 400,000 barrels per day (bpd) from 70,000 bpd in the past seven years. Iran officially launched in August the first phase of the oil-transfer chain of the West Karoun oilfields - with a daily delivery capacity of 460,000 bpd of heavy crude oil and 254,000 bpd of light crude oil to export terminals. Also in August, Iran signed a total of 13 oil contracts with 14 domestic firms, which will raise the Islamic Republic’s oil production capacity by 185,000 bpd. The 13 deals are worth a total of US$1.78 billion (1.527 billion euro).

Vitol Group said inventories have been falling sharply and will continue to decline this year. Trafigura Group, the second-biggest trader, says the market will go back into a surplus. Both companies forecast demand to stagnate and foresee a volatile few months before a gradual recovery next year. As per Vitol, Global stockpile growth peaked at about 1.2 billion barrels in early summer and inventories have since been drawn down by about 300 million barrels. It is expected, they should drop by a further 250 to 300 million barrels in the last four months of the year.

China has supported oil markets with its purchases of record volumes of crude oil in recent months, but it has also imported doubled volumes of fuel blending products, suggesting that the fuel demand recovery in the world’s top oil importer may be more impressive than expected. China’s imports of the so-called mixed aromatics, used in gasoline production, doubled between January and July 2020 compared to the same period last year. Chinese imports of light-cycle oil (LCO), which is used in blending for diesel production, soared 115 percent in the same period. It is quite possible, that actual Chinese fuel demand, which has recovered quickly, may be higher than official figures show.

We expect IFO bunker prices may rise today in a range of plus 8-12 USD, while MGO prices may also gain 3-5 USD.