Expert says bunker market in a waiting mood
The Bunker Review is contributed by Marine Bunker Exchange
World oil indexes started the week with gains due to comments from Saudi Arabia and reports of a slowdown in exports from Libya's Mellitah oil terminal, but then lost the gains and turned into downward movement last two sessions. Anyway, the market was still generally well sup-ported due to rising demand for crude and production restraint led by the Organization of the Petroleum Exporting Countries (OPEC) and Russia.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) demonstrated irregular changes in the period of Feb.22 - Mar.01:
380 HSFO - down from 357.50 to 354,36 USD/MT (-3.14)
180 HSFO - down from 394,79 to 391,50 USD/MT (-3.29)
MGO - up from 604.36 to 605,64 USD/MT (+1.28)
The International Energy Agency (IEA) predicts that non-OPEC supply growth - coming mainly from the U.S., Canada and Brazil - will be able to meet the increase in global demand for the next two years, putting OPEC in the difficult position of needing to keep the supply curbs in place longer than intended. Beyond 2020, however, the IEA says the oil market will face more challenges as mature fields suffer from decline and new sources of supply fail to keep up with strong demand.
The latest discussions within OPEC's Joint Technical Committee in turn have concluded that the stock overhang is being depleted faster than previously thought, suggesting that the market will be in balance as early as the second or third quarter of 2018.
Meantime, crude production cuts from the United Arab Emirates caused OPEC's monthly out-put to fall to a 10-month low in February. The cartel produced 32.28 million barrels per day this month-netting a reduction of 70,000 barrels per day compared to the previous month. The February output figure amounts to the lowest since April 2017. Compliance to the November 2016 agreement to cut output by 1.2 million barrels per day rose to 149 percent this month, jumping five points from January.
Saudi Arabia said its oil production over the first three months of 2018 would be much lower than the amount allowed under the 2016 production cut agreement, while exports were estimated to average 7 million bpd in the three-month period. The kingdom also hoped OPEC and its allies would be able to relax output curbs next year and create a permanent framework to stabilize oil markets after the current agreement on supply cuts ends this year. The statement added some support to the fuel indexes.
Protests at the El Feel field in Libya have led to the introduction of a force majeure at the 90,000-bpd field, affecting exports from Mellitah. Oilfield guards are protesting against low pay and the lack of additional benefits. Libya is producing around 1.1 million bpd currently, and disruptions in its production are widely interpreted as one of the strongest tailwinds for fuel prices at the moment. The political situation in the North African country is still very fragile and volatile, which makes production outages likely in the coming months and perhaps years.
Oil production in Venezuela may further collapse if the U.S. expands sanctions to include the oil industry and restricts U.S. exports of oil products. Earlier this month, U.S. Secretary of State Rex Tillerson said that the U.S. was considering extending sanctions against Venezuela to include imports of Venezuelan crude and exports of U.S. refined products. Currently, sanctions target separate individuals from the Nicolas Maduro government as well as a ban on U.S. banks and other institutions buying Venezuelan debt.
The International Energy Agency (IEA) forecasts that the United States will overtake Russia as the world's biggest oil producer by 2019 at the latest, as the country's shale oil boom continues to upend global markets. U.S. output was 10.28 million barrels per day (bpd) last week: higher than the latest figures for Saudi Arabia, the world's largest exporter, and just below Russia. Meanwhile, the U.S. hasn't seen any significant production increase recently, and because it has occurred counter-seasonally (this is typically a time when crude demand tends to soften), this fact was interpreted by the fuel market as rather supportive to the fuel indexes.
U.S. oil inventories had risen by 3.0 million barrels in the week to February 23. At 423.5 mil-lion barrels, U.S. crude oil inventories are in the lower half of the average range for this time of year, which should stimulate optimism despite a consistent growth in production in the shale patch and upcoming refinery maintenance season that will certainly affect inventories. Besides, U.S. energy firms added one oil rig last week, the fifth weekly increase in a row, bringing the total count up to 799, the highest since April 2011.
Fuel indexes have been also depressed by a stronger U.S. dollar, propped up by Federal Reserve Chairman Jerome Powell's first congressional testimony on Feb.27. Market expects the Fed to raise interest rates three or four times this year, if U.S. inflation starts to take off, especially as growth is set to get another boost from the Trump administration's tax cuts and spending plans. Powell's speech was seen as critical for markets at a time when many investors are nervous about the Fed's policy normalization following years of stimulus after the financial cri-sis almost a decade ago.
It forecasts that oil production in Southeast Asia and East Asia will decline by 20 percent be-tween 2017 and 2025 (to 10.4 million bpd by 2025, down from 13.1 million bpd in 2017) as natural reduction from mature oil fields will significantly decrease oil production in the region, and new projects will not be able to compensate the decline. China in particular is expected to produce an average of 3.8 million bpd in 2018, down by 0.5 million bpd since 2015. Much of China's output comes from mature oil fields and requires significant levels of investment to keep output from falling. The market downturn that began in 2014 forced China's main state-owned oil companies to decrease spending, and the companies frozen some production that was no longer profitable. The forecast gave additional support to fuel prices.
We expect bunker prices may continue insignificant irregular changes next week, while the market is waiting for new drivers.
* 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)
