Expert says no clear trend yet in the bunker market

World fuel market is still in a high volatility mode while fuel indexes continue irregular fluctuations. There is still some support coming in from OPEC and non-OPEC possible freezing output. Oil has rebounded from a 12-year low in January on raising speculation that the Organization of Petroleum Exporting Countries and non-members of the group may agree to pump less to curb the global oversupply. Markets are also being supported by output losses in Iraq and Nigeria, and as Iran restores production more slowly than planned following the end of international sanctions.

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) in the period Mar. 11 – 17 slightly declined with no firm trend:

380 HSFO – down from 168,50 to 165,29 USD/MT (-3,21)

180 HSFO – down from 210,07 to 208.00 USD/MT (-2,07)

MGO – down from 400,14 to 398.29 USD/MT (-1,85)

The International Energy Agency (IEA) predicted oil prices may have passed their lowest point as shrinking supplies outside OPEC and disruptions inside the group erode the global surplus. Production outside the Organization of Petroleum Exporting Countries may decline by 750,000 barrels a day this year, or 150,000 barrels a day more than estimated last month. Meantime, U.S. oil production may also decline by 530,000 barrels a day this year. IEA considered world oil consumption would increase by 1.2 million barrels a day, helping to reduce the global surplus from 1.7 million barrels a day in the first half to 200,000 a day in the last six months of the year.

As per EIA, the return of Iran after January’s nuclear agreement lifted sanctions has been less dramatic than expected and further recovery will be gradual. While Iran promised to restore 500,000 barrels a day as soon as sanctions ended, it instead boosted output only by 220,000 barrels a day in February to 3.22 million, the highest in four years.

Oil producers from OPEC and beyond are finalizing a plan to discuss freezing output at a meeting in Qatar on Apr.17. However there are still questions about how significant a freeze would be as the agreement excluding Iran might be insufficient.

Iran made it clear that it only intends to sign up to the oil production cap once it has reached a production level of 4 million barrels a day – the highest level since 2008. This position met the support from Russia which said it totally understood Iran’s intention to increase production and revive its share in the global markets.

In February Iranian oil production climbed by the most in almost two decades: by 187,800 barrels a day to 3.13 million a day. Supply from Saudi Arabia, Qatar and Venezuela was mostly unchanged. The group lowered estimates for the amount of crude it will need to provide this year by about 100,000 barrels a day, to 31.52 million a day. Cartel pumped 32.28 million barrels a day in February (a drop of 174,800 a day from the previous month), as declines in Iraq and Nigeria more than offset the increase in Iran. Iraq’s production was disrupted by the closure of its northern export pipeline to Turkey, while Nigeria’s was curbed by a halt in loadings of its Forcados grade.

U.S. crude inventories rose only 1.32 million barrels last week (the forecast predicted gain of 2.5 – 3.2 million barrels) to 523.2 million barrels, the highest level since 1930. Crude supplies at Cushing, Oklahoma, also rose to a record 67.5 million barrels (max working capacity is 73 million). Production fell by 10,000 barrels a day to 9.07 million, the lowest since November 2014. Refineries reduced operating rates by 0.1 percentage point to 89 percent of capacity. U.S. refiners typically slow during March to perform maintenance before the summer peak driving season.

Demand in core markets like China remains strong. China’s January-February refinery throughput rose 4.6 percent compared to the same period a year earlier to 87.08 million tonnes (10.59 million barrels per day). The data release came shortly after China reported record daily crude imports of 8 million barrels per day.

President Vladimir Putin announced that the main part of Russian armed forces in Syria would start to withdraw. The statement caused lot of speculations that Putin may be trying to press Assad into accepting a political settlement to the war. Russia’s military interference in Syria in September last year helped to turn the tide of war in Assad’s favor. The Syrian opposition has said the talks must focus now on setting up a transitional governing body with full executive power, and that Assad must leave power at the start of the transition. On the contrary, Damascus has said Assad’s opponents are deluded if they think they will take power at the negotiating table. Syria continues be the potential fuel market mover.

The European Central Bank cut last week all three of its interest rates and expanded its asset-buying program. Although inflation expectations have fallen in recent months on lower crude oil prices, Europe’s growth prospects have held up relatively well as domestic consumption is proving resilient to a slowdown in emerging markets. Weak business and industrial sentiment indicators have however suggested that Europe is facing increasing headwinds, particularly from slowing growth in China.

There is still no any firm trend on world fuel market at the moment, and further development of the situation will largely depend on the chances to reach freezing output agreement. We expect bunker prices will continue irregular changes in a near-term outlook.

Source: Marine Bunker Exchange