Expert predicts high volatility on bunker market with no firm trend

World fuel indexes have demonstrated slight downward trend during the week. One of the factors pushed prices down could be increasing oil drilling activity in the United States, which indicated that producers can operate profitably around current levels. Rigs targeting crude rose by 7 to 414 (the most since February), boosting the numbers of machines added since the start of July to 84.

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) followed the general trend on global fuel market and slightly declined in the period of Sep.08-15:

380 HSFO - down from 240.57 to 237.14 USD/MT (-3,43)

180 HSFO - down from 282.29 to 279.07 USD/MT (-3,22)

MGO - down from 476.36 to 465.50 USD/MT (-10,86)

The International Energy Agency (EIA) changed its view on the global oversupply. As per EIA, the global oil surplus will last longer than previously thought, persisting into late 2017 as demand growth slumps and supply proves resilient. World oil stockpiles will continue to ac-cumulate through 2017, while rising production from OPEC has offset the effect of declining supplies elsewhere and demand decreased in China and India, maintaining the oversupply. The IEA trimmed projections for global oil demand next year by 200,000 barrels a day to 97.3 million a day. It also reduced growth estimates for this year by 100,000 barrels a day to 1.3 million a day.

The Organization of Petroleum Exporting Countries in turn changed its forecasts for rival supplies in 2017, predicting an increase in output from outside the group instead of a decline. As per forecast, production from outside OPEC will grow by 200,000 barrels a day next year (against projected drop of 150,000 a day). The gain is driven by the startup of the Kashagan oil field in Kazakhstan.

Meantime, members of the Organization of Petroleum Exporting Countries and other producers are still considering a deal that will involve each country agreeing to voluntary output caps. Algeria has already said there is a consensus among OPEC and non-OPEC members about the need to stabilize the oil market to support prices. Muted optimism is compensated by skeptical views that freezing output would do little to raise prices as most exporters are pumping out oil at or near record levels, and have adapted to do so at lower prices.

Saudi Arabia told OPEC its oil production dropped by 40,000 barrels a day in August to 10.63 million barrels (decline from all-time high of 10.67 million barrels a day in July) as a result of debates relating a deal to curb output to shore up prices. At the same time the Kingdom has overtaken the U.S. as the world's largest oil producer (when non-crude forms like natural-gas liquids are included). U.S. output in August stood at 12.2 million barrels a day, including natural gas liquids. No figures for Saudi production of natural gas liquids were given.

Iran insists it will be ready to decide on capping production once output reaches pre-sanctions level, and it will be still too early to discuss freezing crude output when the world's biggest producers meet later this month in Algiers. Iran's position limits the options, but its comments may still leave a chance for other ways to rebalance the market such as agreeing on a supply ceiling. Iran's production rose to 3.63 million barrels a day in August from 3.62 million barrels a day in the previous month.

As per other OPEC members: output in Iraq rose to 4.638 million barrels a day in August (from 4.606 million barrels a day the previous month). Country plans to pump 6 million barrels a day by 2020. Kuwait also increased to 2.987 million barrels a day from 2.95 million barrels a day. Nigeria's production rose to 1.456 million barrels a day in August from 1.27 million barrels a day.

Gains in crude prices could potentially be capped by rising crude exports from Libya after the country's National Oil Corporation (NOC) said it would immediately start working to resume crude exports from two key ports seized in recent days by forces loyal to eastern commander Khalifa Haftar. Libyan production could be raised to 600,000 barrels per day (bpd) from about 290,000 bpd within a month. On top of that, a second Nigerian grade operated by Royal Dutch Shell Plc is scheduled to restart about 200,000 barrels a day of flow within days. A resumption of those supplies could more than triple the global surplus.

China's crude oil imports increased to the highest in four months: 32.85 million metric tons of crude in August (about 7.77 million barrels a day ) and may rise further in the coming months as oil processors come out of their peak maintenance season while domestic output falls. Meantime, production in August dropped 9.9 percent from a year ago to about 3.89 million barrels a day, the lowest since December 2009: state-run companies shut fields too expensive to operate after prices fell earlier this year to the lowest since 2003. The impact of rising Chinese imports on the global oversupply could be muted as stockpiles are seen continuing to accumulate.

There is no any firm direction on global fuel market so far while the main supportive factor is still speculation that OPEC talks in the end of September together with non-OPEC producers could result in a crude output freeze. We expect bunker prices may continue irregular changes next week with no firm trend.

Source: Marine Bunker Exchange