MABUX: The signs of market rebalancing support bunker prices
The Bunker Review is contributed by Marine Bunker Exchange
World fuel indexes continued rather firm upward trend demonstrating some of the strongest gains in 2017. Market sentiment has turned cautiously optimistic with rebalancing efforts starting to become more clear.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) has turned into irregular changes in the period of Jul. 27 – Aug.03 although MGO continued firm trend:
380 HSFO - down from 302.21 to 300.50 USD/MT (-1.71)
180 HSFO - down from 342,71 to 341,29 USD/MT (-1.42)
MGO - up from 505.00 to 521.14 USD/MT (+16.14)
Goldman Sachs said, recent data show that the rebalancing of the oil market is speeding up and if the drawdown trends are sustained, stockpiles will normalize by early 2018. Over the past month, fuel prices have rebounded due to robust demand, strong draws in U.S. inventories, and drops in U.S. rig counts. According to Bank estimates, data from the U.S., Europe, Japan, and Singapore point to a total inventory drop of 83 million barrels since March. In addition, demand in the U.S., India, and China is strong, and it is expected to stay strong through the end of this year, leading to sustained draws in the third quarter.
The OPEC cuts continue to have some positive effect. The cartel is taking more than 1 million barrels per day off the market, with a small group of non-OPEC countries contributing about half as much in reductions. Besides, several OPEC members promised deeper cuts. Saudi Arabia said that it would cut exports by another 600,000 barrels per day. The de facto OPEC leader will also limit exports to the U.S., which will help drain inventories. The UAE and Kuwait have also pledged to cut their output further.
However, three separate surveys (Reuters, Bloomberg and Petro-Logistics), suggested OPEC’s July output had grown. The Reuters poll was the most optimistic, pegging the increase at 90,000 bpd. Petro-Logistics estimated it at 145,000 bpd, and Bloomberg’s was the most pessimistic, seeing the increase at 210,000 bpd. Separately, data from Kpler showed OPEC’s crude oil exports reached 26.68 million bpd last month, up by 388,000 bpd on June. The UAE led the increase, with a 326,000-bpd boost in its exports, while Kuwait was responsible for the biggest decline in exports, at 241,000 bpd.
Meantime, a joint OPEC/non-OPEC technical committee will be meeting in Abu Dhabi on next week to discuss ways to improve compliance by members that have not been sticking 100 percent to their output quotas so far (the monitoring committee has estimated total OPEC/non-OPEC compliance was 98 percent in June). The new meeting comes as Saudi Arabia is no longer willing to let some producers have a free ride while others cut as pledged..
Besides, OPEC officials are hoping to limit the production of both Libya and Nigeria, as fears grow that the two exempted members are undermining cuts from the rest of the cartel. Russia supports this position: as soon as these countries reach a stable production level, they must join other responsible producers and make their contribution to the measures aiming to rebalance the market. The meeting in Abu Dhabi will be co-chaired by Kuwait and Russia.
Crisis in Venezuela and falling oil production tied to U.S. sanctions could lead to a rise in prices, which will benefit other produces as well as US shale. Venezuela has attempted to talk its OPEC partners into steeper production cuts in order to raise prices faster. The country has suffered more than any other OPEC member in the last several years, as declining oil prices led to severe balance of payments problems, food and supply shortages and aggressive inflation. Barclays estimated that U.S. sanctions on Venezuela could raise prices by as much as $7.
The Saudi Arabia-led coalition and the Yemeni government blocked four oil tankers from entering the Hudaidah port on the Red Sea. The tankers denied entrance to the port contained ten percent of Yemen’s monthly energy needs. The Hudaidah port is currently controlled by the Houthi rebels backed by Iran. The Saudi coalition is trying to contain the spread of Iranian influence in the region by fighting a proxy war for control of the Bab al Mandab strait, which controls oil traffic to the markets of sub-Saharan Africa. The Ras Isa and Saleef ports are also controlled by Houthi forces. Any vessels headed in their direction are at high risk for being intercepted by the Saudi coalition.
The number of active oil rigs in the United States rose last week by 2 rigs showing a growth (albeit a slower one) in oil drilling as US Companies proceed more cautiously than before. Combined, the total oil and gas rig count in the US now stands at 958 rigs, up 495 rigs from last year. But while the rise in the number of active rigs in the US slows, US crude oil production is not, with average production averaging 9.43 million barrels per day for the week ending July 28 - more than 1 million barrels higher than in in January 3, 2014, when 1,378 US oil rigs were active.
It’s still difficult to find a reliable estimate for production costs in the shale sector. Some sources, (ex. the Wall Street Journal), point the average at US$23 a barrel. The other one, however, warned that oil below US$50 is unsustainable, and if crude slips below US$40 a barrel, it could deal a severe blow to many producers. The remarks suggest that most shale producers are far from the US$23 a barrel that the WSJ calculates as an average.
Chinese customs data has revealed that the country imported 8.55 million bpd of crude oil during the first half of the year, or 212 million tons in total - a 13.8-percent annual increase. However, according to Bloomberg, China’s apparent oil demand dropped by 0.3 percent in April 2017, with gasoline demand slumping 6.3 percent, for the first drop since September last year. If Chinese demand growth is not as strong as OPEC and the market hope for, the glut could take even longer to clear, and fuel prices could stay lower for even longer. Meantime, the Caixin manufacturing PMI in China came in at 51.1, a better than expected figure that the 50.4 seen and aiding markets higher.
Now the market is waiting to see if the signs of rebalancing are just a seasonal trend, or if the glut is really starting to shrink. We expect bunker prices may continue slight upward evolution 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)
