MAUBX: Bunker market is on a way to rebalancing
The Bunker Review is contributed by Marine Bunker Exchange
World fuel indexes rose during the week, supported by main oil producers’ statements about possible extension of oil production cut agreement. However, last few days quotes turned into slight downward movement after US output and export data.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) increased in the period of Oct. 26 - Nov. 2:
380 HSFO - up from 332.50 to 349.79 USD/MT (+17.29)
180 HSFO - up from 371.86 to 389.07 USD/MT (+17.21)
MGO - up from 555.64 to 569.57 USD/MT (+13.93)
Prices were turned up by comments of Prince Salman about supporting the extension the production cut agreement. He suggested extending the agreement for another nine months to the end of next year. He also insisted that OPEC needs to continue stabilizing the market. Earlier Saudi Arabia's energy minister confirmed its determination to end a global supply glut. Russian President Vladimir Putin also said that he doesn't rule out an extension to the end of 2018. OPEC is expected to discuss extending of the agreement at a meeting in Vienna on Nov. 30. Optimism that OPEC extend its supply cut plan is rising and it made a good support to bunker fuel quotes. Moreover, OPEC's October output fell by 80,000 barrels per day (bpd) to 32.78 million bpd with a compliance at 92 percent, up from September's 86 percent. Russia is also seen to cut its output by around 300,000 bpd below October 2016 levels of 11.247 million bpd. As one more step to market re-balancing Saudi Arabia is expected to rise December crude prices for customers in Asia to levels last seen in 2013 or 2014.
Crude oil from northern Iraq, including from the Kurdistan region, stopped flowing from the oil pipeline between Kirkuk and the Turkish Mediterranean port of Ceyhan on Oct.30., despite of the reports that the flows resumed. Oil production in the Kirkuk area continues at the Baba Gurgur, Khabbaz, and Jambour oil fields, but only insofar as to meet demand from local refineries. Over the weekend, Iraqi authorities increased oil exports from the southern Basra region by 200,000 bpd to make up for a shortfall from the northern Kirkuk fields. It also increased its total oil export capacity from its southern ports by 900,000 bpd to 4.6 million bpd a few days ago, after adding a new floating terminal.
The total oil and gas rig count in the United States now stands at 909 rigs, up 352 rigs from the year prior, with the number of oil rigs in the United States increasing by 1 last week. However, U.S. oil production grew by 46,000 barrels a day to 9.55 million barrels a day. At the same time, weekly U.S. crude oil exports rose to an all-time high of 2.13 million barrels per day. That turned prices into downward trend. The ongoing surge in U.S. crude exports comes as the widening spread between WTI and Brent oil prices continued to increase international demand for U.S. crude.
At the same time, oil inventories fell by 2.4 million barrels last week – to 454.9 million barrels, which the EIA considered to be at the upper half of the average range for this time of year. It was expected a decline of 1.7 million barrels. Supplies at Cushing, Oklahoma, the key delivery point for Nymex crude, rose by 90,000 barrels last week.
The uncertainty surrounding the U.S. sanctions on Iran leads to uncertainty regarding OPEC’s third largest oil producer’s ability to contribute to or maintain oil output. Tehran’s participation in the oil deal has been contingent upon the success of the nuclear deal since January 2016. New sanctions from the U.S. Congress may stop the progress of Iranian oil development.
The geopolitical impact of the Gulf’s economic blockade against Qatar could also have significant geopolitical consequences as it enters into its sixth month with no end in sight. Instead of limiting its ties to Iran, Qatar is strengthening ties with it, which rivals Saudi Arabia politically and economically. Escalating tensions between the Gulf and Qatar will further increase the tension between Iran and Saudi Arabia, impacting the future of Iran as a political player and as a major oil producer.
The cause for the present upward evolution of the fuel indexes is a series of comments from top OPEC and Russian officials last week, pointing to cohesion around another extension of the production cuts. It is clear, that the market is on its way to rebalancing. At the same time U.S. output, that rose by almost 13 percent since mid-2016 to 9.5 million bpd may slow down the process. Trade data shows that global oil markets have been slightly undersupplied during the past quarters, resulting in inventory drawdowns. We expect bunker prices will continue 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)