Downward trend likely to prevail on world bunker market next week, expert says
The Bunker Review is contributed by Marine Bunker Exchange
During the week main oil indexes slightly rose on dollar daily fluctuations and on speculations that OPEC will maintain its output target when it meets in Vienna on June 05. MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO in the main world hubs) from May 28 till June 03 showed upward trend too:
380 HSFO - up from 331,21 to 345,64 USD/MT (+14,43)
180 HSFO - up from 359,57 to 373.21 USD/MT (+13,64)
MGO - up from 615,71 to 631.50 USD/MT (+15,79)
The U.S. releases its May payrolls report last Friday, where employers added 228,000 workers to nonfarm payrolls, following an increase of 223,000 in April. The Institute for Supply Management's factory index also climbed in May from an almost two-year low as orders increased at the fastest pace in five months: 52.8, which exceeded forecasts of 52. Readings above 50 indicate expansion. The positive statistics supported fuel indexes.
Market also hopes a slowdown in US output and increased demand during the summer driving season could limit the huge global supplies. Stockpiles dropped a fifth week by 1.95 million barrels to 477.4 million barrels. Supplies at Cushing, Oklahoma, the delivery point for WTI futures, fell 983,000 to 59 million. Declining U.S. stockpiles of crude and oil products in past weeks indicate firm demand and support the prices.
Last week rig count data from Baker Hughes showed U.S. drillers again reducing the number of rigs in operation despite speculation that they would add more. Rigs targeting oil in the U.S. declined by 13 to 646, the lowest since August 2010. U.S. energy producers sidelined more than half of the rigs drilling for oil after crude prices collapsed in the second half of last year. A lower rig count signals potentially lower production in near-term outlook.
China became another supportive factor for world fuel prices. Country's apparent oil demand in April increased 5.4% from a year earlier to 42.89 million metric tons (mt), or an average 10.48 million barrels per day (b/d). Demand during the month was mainly supported by an increase in demand for light-end products such as gasoline. At the same time, China was a net oil product exporter in April, with volumes totaling 240,000 mt.
Besides, China took a step closer to adding oil futures to its domestic commodities markets as an attempt to seek greater influence in determining the price of raw materials. The Shanghai International Energy Exchange will start yuan-denominated crude futures (domestic Shengli crude and six different Middle Eastern grades) in the city's free-trade zone at the end of this year. The contract will trade in 100-barrel lots.
Greece's creditors said a deal to unlock rescue aid isn't imminent as they demanded the country make stronger commitments to overhaul its economy and strengthen public finances. Greece owes a total of about 320 billion euros, of which about 65 percent to euro zone governments and the IMF, and about 8.7 percent to the European Central Bank. If Greece skips the IMF payment, the consequences are hard to predict: a default could ultimately push Greece out of the single European currency and unleash possible turmoil on world markets.
OPEC is expected to agree to continue pumping the same amount of oil when they hold their meeting in Vienna on June 5, 2015. This is despite calls from some OPEC members to cut output in order to reduce a global supply glut and thereby boost the price of oil. The cartel produces about 30 percent of the world's crude and up to 2 million barrels per day more than needed this year: 31.22 million barrels of oil per day in May. All-in-all, with heightened geopolitical risk threatening oil supplies in the Middle East and North Africa, it is highly unlikely that OPEC will reduce the quota.
Iran and six global powers seek to finalize by June 30 the terms and details of a nuclear agreement that would restrain Iran's nuclear program and ease the sanctions. As per government in Tehran, it can add almost 1 million barrels to daily production within six months of sanctions being lifted. Iran produced 2.8 million barrels a day of crude last month, compared with 6 million in the 1970s. If a final agreement is reached, U.S. and European sanctions will probably be phased out rather than lifted at once. But Iranian oil could hit the market even before the country raises output as it has about 10 million barrels in storage on ships.
Market is closely monitoring a potential rise in Iraqi oil exports as well, which could exacerbate the global glut. Iraq plans to increase crude exports by about 26 percent to a record 3.75 million barrels a day next month signaling an escalation of OPEC strategy to undercut U.S. shale drillers in the current market rout. The additional Iraqi oil is equal to about 800,000 barrels a day.
We expect high volatility in world bunker prices in the end of the week. The future trend will be largely determined by the results of the meeting of OPEC in Vienna, as well as a way to resolve the Greek financial crisis. Most probably we will see downward changes in bunker prices next week.
* MGO LS
All prices stated in USD / Mton
All time high Brent = $147.50 (July 11, 2008)
All time high Light crude (WTI) = $147.27 (July 11, 2008)
