MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) sharply increased in the period of Nov. 02 – Nov. 9:
380 HSFO – up from 349.79 to 363.86 USD/MT (+14.07)
180 HSFO – up from 388.21 to 406.57 USD/MT (+18.36)
MGO -up from 569.57 to 588.43 USD/MT (+18.86)
Prices have been supported this week by expectations that oil producing countries will agree to extend an output cut and by potential supply disruptions following a number of corruption arrests that targeted royal family members and ministers in Saudi Arabia. Nevertheless, there were some negative factors, that were declared in the latest OPEC and U.S. Energy Information Agency (EIA) reports.
Prices were boosted by expectations that OPEC is likely to keep its 1.2 million barrels per day of production reductions in place through the end of 2018. Another 600,000 bpd of output has been cut by Russia and nine other nations to boost the effects of the OPEC agreement. Both the Saudis and Russians have signaled that they are willing to extend the pact beyond March 2018. Discussions are continuing in the run-up to the November, 30 meeting, which oil ministers from OPEC and the participating non-OPEC countries will attend. There are Libya and Nigeria, the exempted members of the cartel, which have since January brought on an additional 694,000 bpd to global supply. While Nigeria has signaled a willingness to cap its output at 1.8 million bpd, its current level, there is no guarantee it will go ahead with the cap now that Brent is over $60.
At the same time OPEC in its 2017 World Oil Outlook said that world oil demand to reach a plateau in the second half of the 2030’s caused by a rapid adoption of electric vehicles. Moreover, the demand for its crude would rise in the next two years more slowly than previously expected as a recovery in prices due to OPEC’s return to supply management stimulates output growth outside the group. A rise in prices in 2017, plus sustained demand growth, had resulted in a higher forecast for supplies outside OPEC, which includes U.S. shale. North American shale output may rise to 7.5 million barrels a day in 2021, according to OPEC’s report, that is 56% higher than it forecast a year ago. The U.S. EIA in separate report also revised upwards its estimate for domestic crude oil production. U.S. crude oil output will rise by 720,000 bpd to 9.95 million bpd in 2018, it said.
A wave of arrests of Saudi Arabian princes, businessmen and government ministers made strong support for the fuel market this week. It has been billed as an anticorruption crackdown but is seen by some as a consolidation of power by Crown Prince Mohammad bin Salman. Saudi Arabia is among the world’s top producers of oil and OPEC’s most influential member. However, market for now does not see Saudi Arabia changing its policy of boosting crude prices.
Iraq’s Supreme Federal Court ruled on November,6 that no region or province can secede, strengthening the government’s hand as it seeks to prevent a repeat of September’s Kurdish independence vote. Iraq’s oil ministry has ordered a stop to all oil exports from Kirkuk’s oil fields to the Turkish Mediterranean port of Ceyhan. 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. Meanwhile, Iraq has boosted its oil exports from the southern Basra port by 200,000 bpd to make up for lost exports on the Kirkuk-Ceyhan route. 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. Anyway, the market has already reacted to the situation and its changes would hardly influent the fuel prices.
The U.S. newest round of sanctions against Russian oil and gas industry targets Russia’s upcoming projects worldwide. A new provision in a preexisting sanction levied by the U.S. Department of Treasury now prohibits companies from assisting in exploration and production activities in deep waters, the Arctic Ocean, or shale projects initiated after January 29, 2018. However, American sanctions on Russia oil and gas companies have had little effect on Moscow’s efforts in securing exploration and production deals so far. Current production stands at 10.92 million bpd, which is close to a 30-year record.
The number of oil and gas rigs in the United States fell for yet another week, this time dipping 11 rigs – the largest decline in the number of oil rigs this year. The number of oil rigs in the United States decreasing by 8 (to 729) last week. At the same time U.S. exports of crude oil hit a record of over 2.1 million bpd last month and most likely will continue to grow as long as the spread between Brent and WTI remains as wide as it is now, making U.S. crude more attractive than Brent-tied Middle Eastern grades. U.S. production rose to an all-time high of 9.62 million barrels per day this week. Inventories of U.S. crude also rose by roughly 2.2 million barrels for the last week.
Venezuela is going to seek a restructuring of the country’s debt. There will be a meeting with creditors on November 13 to negotiate the variants. But U.S. sanctions will likely make a deal exceedingly difficult. The country and the state-owned oil company PDVSA owe $1.7 billion before the end of the year and another $9 billion in 2018, a figure that exceeds the country’s total cash reserves. In fact, there is a decent chance of an imminent Venezuelan default.
China’s October oil imports fell sharply from a near record-high of about 9 million barrels per day (bpd) in September to just 7.3 million bpd in October. That’s their lowest level since October 2016. The reason for that could be less purchases from independent refineries as many of them are running out of crude quotas for this year. For next year, however, independent refiners are likely to boost their imports again as authorities on Nov. 08 raised their 2018 crude oil import quota by 55 percent over 2017, to 2.85 million bpd.
Despite of the fact that global oil indexes have passed the $60 barrier, there are still some challenges for the further success of OPEC+ production cut deal. The revised outlook in the OPEC’s report illustrates dilemma: with supply curbs also helping its rivals, demand for the cartel’s crude will remain little changed until shale oil output peaks after 2025. Overall, oil markets remain well supported largely due to an ongoing effort lead by the OPEC and Russia to withhold supplies in order to prop up prices. We expect bunker prices will continue slight upward movement 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)
Source: Hellenic Shipping News.