MABUX: Irregular changes may prevail on global bunker market next week
The Bunker Review is contributed by Marine Bunker Exchange
World fuel indexes demonstrated slight downward evolution during the week. The market seems immune to bullish signs of falling stockpiles as the Organization of the Petroleum Exporting Countries (OPEC) and other major producers struggle to maintain compliance with a deal to cut output.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) has slightly decreased in the period of Aug. 10 - Aug. 17 as well:
380 HSFO - down from 305.14 to 296.79 USD/MT (-8.35)
180 HSFO - down from 345.07 to 340.36 USD/MT (-4.71)
MGO - down from 514.64 to 504.00 USD/MT (-10.64)
Output among the OPEC group’s members rose in July. That pushed prices down. According to OPEC’s report, the cartel's oil output rose by 173 thousand bpd in July (to 32.87 million bpd), led by gains in Libya and Nigeria (two members exempt from the cuts aimed at eliminating excess supply). Libya increased its output by 154,3 thousand bpd (the biggest increase among the cartel’s members), while Nigerian oil production rose by 34,3 thousand bpd (to 1.748 million bpd). Saudi Arabia went up by 31,8 thousand bpd (to 10.067 million bpd). The figures mean OPEC has complied 86% with its output-cutting pledge, down from 96% initially reported for June but still high by OPEC standards.
Nevertheless, OPEC forecasts higher demand for its oil up to 32.42 million barrels per day (up 220,000 bpd from the previous forecast) in 2018 due to rising global consumption and slower supply growth from rivals. The demand is expected to grow by 1.37 million barrels a day in 2017. OPEC also raised its forecasts for global oil demand growth in 2017 and 2018, saying consumption would rise by 1.28 million bpd next year.
The IEA in turn said OPEC's compliance with the cuts in July had fallen to 75 percent (down from 77 percent in June), the lowest since the cuts began in January. It cited weak compliance by Algeria, Iraq and the United Arab Emirates.
However, as per IEA, the oil market is still on track to rebalance, although the pace is stubborn and will still take some time. In the second quarter global inventories fell by 0.5 million barrels per day (bpd), and preliminary data for July show that the strong inventory declines continued, particularly in the U.S., which showed a 790 thousand bpd drawdown. Add to that the non-OPEC countries (including Russia) only achieved a compliance rate of 67 percent. In short, the 22 countries involved in the agreement are producing a combined 470 thousand bpd above the levels that they promised.
U.S. crude stockpiles tumbled by 8.9 million barrels last week. That is the largest crude draw since September, marking the 11th straight drawdown and more than expected. Meantime, the number of active oil rigs increased by 3 (to 768 - 372 rigs above last year) in the United States last week as drillers continue to add rigs in defiance of low oil prices, albeit at a slower rate. The rise in the number of active rigs in the US has slowed in recent weeks, but US crude oil production is not, with average production of 9.502 million barrels per day last week. The EIA expects US production to reach an average of 9.91 million barrels per day in 2018.
Tensions between the United States and North Korea also have been the upward driver for the indexes. Nevertheless, North Korea's leader signaled that he would delay plans to fire a missile near Guam, easing tensions. Kim Jong Un said he would watch the actions of the United States for a while longer before making a decision. At the same time, worries about a conflict between the United States and North Korea are not completely gone.
China’s crude refineries had in July their lowest daily throughput rate of 10.71 million bpd since September last year amid oversupply of fuels on the domestic market. Now, the lowest refinery runs in 10 months at a peak demand season is creating some concern about Chinese oil demand growth.
There is still a risk of ongoing oversupply, which is based on the swift return of U.S. shale, plus rising production from Libya and Nigeria. The OPEC report stoked fears that OPEC and its allies’ may not be able to stem the glut in supplies by only curbing production. At the same time, decrease of oil inventories looks like one of the signs of market rebalancing. Bunker prices may demonstrate irregular changes next week: there are still a lot of factors at the market influencing the global supply.
* 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)
