Expert predicts bunker prices downward evolution next week
The Bunker Review is contributed by Marine Bunker Exchange
World fuel indexes have faced a sort of turbulence this week. The most powerful Hurricane to hit Texas in more than 50 years has devastated much of the coast, and the historic flooding is now causing havoc in the energy markets. The first obvious effect is a disruption to the production of refined products, which could have substantial effects on the U.S. fuel supply. That has already forced gasoline futures up by 7 percent to their highest levels in two years.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) has continued irregular changes in the period of Aug.24 – Aug.31:
380 HSFO - down from 302.93 to 300,43 USD/MT (-2.50)
180 HSFO - down from 345,64 to 342,21 USD/MT (-3.43)
MGO - up from 509.93 to 516.07 USD/MT (+6.14)
Tropical storm Harvey forced operators to close several refineries and evacuate and close offshore platforms. In the short run, the U.S. could see a bit of a glut of lighter forms of oil, while heavy oil producers overseas will be hit by a temporary interruption of purchases from Texas refiners. There are reports that oil tankers are idling offshore in the Gulf, but they will likely have to wait a little while longer before they can dock. The United States has been exporting around 1 million bpd of crude in recent month. Overall, this makes it more likely that prices will rise in the short term as suppliers of crude to the U.S. Gulf Coast seek new buyers, and buyers of U.S. crude seek new supplies.
The disruptions could also impact shale producers. Two crucial pipelines servicing the Permian Basin – the BridgeTex and Longhorn pipelines – saw operations suspended, taking 650,000 bpd of takeaway capacity offline. Other pipelines in the state were temporarily idled as well. Meanwhile, oil production offshore was also affected. More than 100 oil platforms in the Gulf were evacuated, although those platforms will probably come back online much quicker than the onshore refineries. All these aftermaths of the storm could weigh on the fuel prices.
Amid the shutdown of 20 percent of U.S. refining capacity, the EIA’s latest weekly inventory report may limit the fall in oil and fuel prices. It was reported a draw of 5.4 million barrels for the week ending August 25. The EIA also said refineries last week processed 17.7 million barrels of crude daily, operating at 96.6 percent of capacity. This compared with runs of 17.5 million bpd a week earlier. Crude oil production in the United States averaged 9.528 million barrels (+ 2.000 barrels) in the week to August 25 with imports at 7.9 million barrels daily. In the coming weeks market will probably see inventory builds not just because of the end of driving season, but also because the effects from Harvey will take at least a couple of months to offset.
Russia and Saudi Arabia are planning to extend the Organization of Petroleum Exporting Countries’ (OPEC) production cuts until June of next year. The deal, which lowers the bloc’s output by 1.2 million barrels per day, is already set to extend until March 2018. A three-month extension looks rather logical to be taken in the autumn when the oil market sentiment would likely become more pessimistic again. An extension to June 2018 would also prevent an increase in surplus after March next year.
At the moment at least one more member, Angola, is pushing for an extension. The point is that it is better to cut the level of production and make the price of oil rise instead of producing at the max level and selling at low prices. OPEC+ joint panel also plans to invite Libya and Nigeria to attend the next meetings of the committees, in a sign that rising output from those two exempt producers is now a concern for OPEC.
Venezuela is still a factor of risk for market upward evolution. The Venezuelan economy has been broken for a long time now, leading to a sharp decline in oil production: 1.93 million bpd in July against averaged 2.375 million bpd in 2015. The pace of decline would pick up significantly if Venezuela defaulted on its debt. This scenario could push fuel prices further up.
Another potential upward driver may be Iran. The Trump administration is considering backing out of the 2015 nuclear accord, which would intensify tensions between the two countries. Ultimately, a renewal of U.S. sanctions could once again pose a threat to Iranian oil exports.
Meantime, a blockade of pipelines at the hands of armed militants has shut down production at three Libyan oil fields. Sharara (the biggest one) stopped pumping oil a week ago and is still idle. In addition, force majeure was declared for El Feel and Hamada (was reported to resume production on Aug.29 with no official confirmation). Recent disruptions have cost the country 350,000 barrels daily in lost output and will force the central bank to curb spending further even though it has been trying to avoid this.
On the contrary, China could turn into a factor that could bring down fuel prices. This year Chinese crude imports have run at record-breaking rates (the average daily at about 8 million barrels). A lot of these, however, are going into storage tanks: the country has been building a strategic crude oil reserve for the last decade, but the size of that reserve remains undisclosed. However, if the rate of imports slows down from the current 1 million bpd, it may hit severely the market rebalancing process. Latest analysis has already said, the growth rate of crude oil imports in China may slow down to 700,000 bpd in the second half of this year. For next year imports may only increase by 100,000 bpd as Chinese producers expand their output abroad and the country’s strategic reserve could be filled to capacity by the end of the year.
All in all, despite it seems that the fuel market is still moving in the right direction towards rebalancing, but all options, including extending the cuts beyond March 2018, are left open. We expect bunker prices may turn into downward evolution next week while the market will continue to estimate the aftermaths of Harvey storm.
*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)
