MABUX says bunker prices outlook for next week uncertain
The Bunker Review is contributed by Marine Bunker Exchange
Main fuel indexes demonstrated slight downward trend during the week due to global oversupply which is still pressing prices down. MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) from Oct. 08 till Oct.15 declined while following the general trend on world oil market:
380 HSFO - down from 224,14 to 219,71 USD/MT (-4,43)
180 HSFO - down from 252,43 to 248.14 USD/MT (-4,29)
MGO - down from 513,71 to 508.00 USD/MT (-5,71)
U.S. oil supplies expanded again: by 8.028 million barrels last week to 476.6 mil-lion barrels. That is the longest run of gains since April and keep supplies more than 100 million barrels above the five-year seasonal average. The increase is due to low refinery utilization which should continue as a result of continuing refinery maintenance. Build-up in the inventories data may indicate softer demand, in turn dampening prices.
At the same time oilfield-services company Baker Hughes Inc reported that the U.S. oil rig count dropped by 10 to 595 last week to a five-year low, while output has slipped from a four-decade high reached earlier this year. U.S. crude output decreased 76,000 barrels a day to 9.1 million in the week ended Oct. 9: production is down 514,000 barrels a day from the 9.61 million reached in June, the most since 1972.
In spite of that OPEC’s outlook for the coming year is rather optimistic. It expects the market will need 30.82 million barrels per day in 2016 from OPEC member countries, exceeding its previous forecast by more than 510,000 barrels per day. On the contrary, cartel expects non-OPEC producers such as, Europe, the Americas and Russia will see a decline in their oil production by 130,000 barrels per day.
The forecast was somewhat discrepant: OPEC expects the overall growth in global demand for oil to decline, in large part because of slower economic growth in China. But if non-OPEC nations can’t produce as much crude as before, the market will tighten, to the benefit of the cartel. If this expectation comes true, it would validate the cartel’s strategy: not to support prices by reducing production, but keeping combined production at or above 30 million barrels per day.
A meeting of oil experts on Wednesday in Vienna (involving members of the Organization of the Petroleum Exporting Countries and non-OPEC oil producers, including Russia) just targeted to clarify further trends on world oil and fuel markets. However, as it was expected from the beginning, the meeting has failed to agree any coordination over supply. At the moment OPEC continues to pump 31.57 million barrels per day (bpd), much more than its official 30 million bpd target.
There is also a threat that Saudi Arabia may run out of financial assets needed to support spending within five years amid the drop in oil prices, which accounts for about 80 percent of Saudi’s revenue. It is prompting the government to delay projects and sell bonds for the first time since 2007. The IMF expects Saudi’s budget deficit to rise to more than 20 percent of gross domestic product this year and 19.4 percent in 2016.
Official data showed China's economy posted its slowest growth for more than six years in the third quarter, reinforcing worries about demand. Gross domestic product (GDP) in China rose 6.9 percent between July-September - the worst since 2009. Growth in China's industrial production, which measures output at factories, workshops and mines, also dropped sharply to 5.7 percent year-on-year in September.
Meanwhile, China's crude imports may continue to grow over the next five years at an average annual rate of 3.2 percent: from 6.6 million bpd in 2015 to 7.7 mil-lion bpd by 2020. This will be a result of higher domestic refinery run rates and continued strategic stockpiling activities, which will boost demand for crude im-ports and may support the prices to a certain extent.
Market is also wary of the return of Iranian oil supplies into the market as Tehran and world powers begin to implement a deal aimed at curbing Iran's nuclear programme in exchange for the lifting of economic sanctions. It forecasted that Iran can boost oil exports by 500,000 barrels a day within a week after the removal of sanctions, and raise exports by 1 million barrels a day within next six months. Iran targets crude production of 4.7 million barrels a day by March 2021 and plans to produce 1 million barrels a day of crude condensates by the same date. It pumped 2.8 million barrels a day of oil in September.
As a part of the process, Iran is going to offer about 50 energy projects to investors as well. However there are some concerns that even after sanctions are lifted investors may still face the danger restrictions will be re-imposed if Iran brakes its side of the deal. This factor of risk could be a major problem for market participants financing projects there.
The overall picture for the world fuel market remains unchanged. The oversupply issue is expected to stay for a while longer until global demand picks up. We expect irregular fluctuations will prevail in bunker prices trend 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)
