Optimism about OPEC’s talks supported bunker prices, expert says
The Bunker Review is contributed by Marine Bunker Exchange
World fuel indexes turned into the firm upward trend during the week supported by a weakening dollar and speculation that OPEC talks next month could result in a crude output freeze. At the same time there were also many controversial forecasts published recently and saying that weakness in global crude markets may continue as demand slows seasonally and fuel inventories remain abundant.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) rose in the period of Aug.11 – Aug. 18:
380 HSFO - up from 211.36 to 238,57 USD/MT (+27,21)
180 HSFO - up from 262.21 to 284.21 USD/MT (+22,00)
MGO - up from 446.64 to 475.79 USD/MT (+29,15)
The International Energy Agency predicted, that global oil markets will continue to re-balance this year as a pick-up in demand from refiners absorbs record output from several Persian Gulf producers. Refiners are going to process record volumes of crude this quarter, that may help to shrink brimming crude stockpiles, even as Saudi Arabia, Kuwait and the United Arab Emirates pump at all-time highs. The agency trimmed forecasts for world oil demand growth in 2017 by 100,000 barrels a day, projecting that consumption will expand by 1.2 million barrels a day to average 97.5 million a day. Oil inventories in industrialized nations climbed to a record of more than 3 billion barrels in June as stockpiles of refined products expanded by more than four times the seasonal average.
Rigs targeting crude in the U.S. increased by 15 to 396 - the seventh week in a row and the longest period of expansion since the final days of the drilling boom in early 2014. Explorers have now added 66 rigs since June 24, led by rising activity in the Permian Basin in West Texas.
As a sign of rising production activity, U.S. crude exports have been expanding: more than 87 million barrels of crude and condensate have been shipped to 17 countries in the first half of 2016. Most has gone to Canada, which received 53.5 million barrels, followed by Curacao (8.68 million) and the Netherlands (6 million). There are still few more countries that have yet to buy any American oil this year including India, South Korea and Germany.
Despite the gains in the rig count and rising export volumes, the IEA reiterated its view that shale oil production will decline by half a million barrels a day this year with a further drop of 200,000 barrels a day next year, while the number of completed wells will drop by half this year compared with last year.
The main supportive factor of the week was speculation that OPEC would discuss a potential cap on production at an upcoming meeting between the members of the group. Saudi Arabia signalled it is prepared to discuss stabilizing markets and expressed the hope that talks may result in action to stabilize the market. Venezuela has begun coordinating efforts among OPEC members and producers outside of the group including Russia. As a first step, Venezuela’s oil and foreign ministers has begun visiting producer countries to lobby for price increases ahead of the talks. Russia in turn said it is open to talks for a joint output freeze if necessary.
Despite of that the market is rather sceptical that OPEC will put aside a market share battle in order to prop up prices as any attempt to freeze or restrain production to lift prices will stimulate competing non-OPEC supply and lose market share.
Meantime, fight by producers for Asian and European market shares, especially in the Middle East, is ongoing. Iran is edging out Russia in a fight to supply crude oil to Poland while its crude exports to South Korea rose in July to nearly four times the level of a year ago, and 5.9 percent higher than the previous month. South Korea imported 1.10 million tonnes of Iranian crude oil last month (260,910 barrels per day, compared with just 286,374 tonnes imported a year earlier.
Exports from Venezuela – the member of OPEC and the holder of the world’s largest crude reserves - fell in July to 2.15 million barrels a day, compared with an average 2.4 million last year. While Venezuela’s output has been declining all year, the impact is only now being felt on international markets because previous losses were offset by slumping domestic oil demand amid an economic recession. The nation’s output dropped to a 13-year low in July as international oil services companies scaled back their activities after state-run PDVSA fell more than $1 billion behind in debt repayments.
China’s statistics has supported fuel indexes as well. Crude production last month dropped 8.1 percent to 16.7 million metric tons from a year ago. That’s about 3.95 million barrels a day, sliding more than 2 percent from June. Output is down 5.1 million during the first seven months of the year. Chinese oil majors are estimated to have cut capital spending by 10 percent in the first half of the year from the same period in 2015.
Still oil production losses in Nigeria (more than 700,000 barrels per day), which has been beset by escalating militant attacks in the oil rich Niger Delta region this year and pipeline problems, were helping to support prices on global fuel market.
As a resume, the Organization of the Petroleum Exporting Countries will probably revive talks on freezing oil output levels when it meets non-OPEC nations next month. The freeze deal will not have a huge impact on fundamentals but it may help improve the market sentiments. We expect bunker prices may continue slight upward 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)
