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MABUX: Bunker market this morning, Mar.12

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, VLSFO and MGO (Gasoil) in the main world hubs) have turned into slight upward correction on Mar.11, the first time since Mar.05:

380 HSFO – USD/MT – 297.25 (+4.52)
VLSFO – USD/MT – 402.00 (+7.00)
MGO – USD/MT – 486.07 (+6.53)

Meantime, world oil indexes changed irregular on Mar.11: Saudi Arabia and the United Arab Emirates announced plans to boost production capacity.

Brent for May settlement decreased by $1.43 to $35.79 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for April fell by $1.38 to $32.98 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $2.81 to WTI. Gasoil for March delivery gained $7.00.

Today morning global oil indexes continue firm downward trend.

With the collapse of coordinated output cuts by Saudi Arabia, Russia and others, the Saudi energy ministry has directed producer Saudi Aramco to raise its output capacity to 13 million from 12 million barrels per day (bpd). UAE national oil company ADNOC also said it would raise crude supply to more than 4 million bpd in April and accelerate plans to boost its output capacity to 5 million bpd, a target it previously planned to achieve by 2030.

Russia in turn said, it can raise its oil production by 200,000 bpd to 300,000 bpd in the short term, with a potential for up to a total increase of 500,000 bpd. The Russian companies will be reassessing their investment and production plans after they are no longer obliged to stick to the OPEC+ deal. Just before the OPEC+ meeting last week Russia’s average oil production had increased to 11.29 million bpd in February, up by 3.2 percent on the year and slightly up from 11.28 million bpd in January. The end of the OPEC+ deal will now allow Russian oil companies to boost output as soon as the current deal expires on April 1.

Coronavirus is still spreading globally and its spread in major economies like the United States will continue to hurt oil demand. The flu-like coronavirus, which can be transmitted from person to person, originated in China late last year and has spread to more than 100 countries since then. The Norwegian energy firm Equinor said activity on the field will be reduced on Mar.11 due to the first case of the coronavirus. However, China’s independent oil refiners are cranking up production as local governments begin to relax strict measures to contain the coronavirus and fuel demand begins to recover. As new cases subside, more parts of China which had been in lockdown are being allowed to resume work, though travel curbs are still in place in some areas.

U.S. shale growth is about to decline. The number of shale companies have announced budget cuts multiplied at the start of the week. Diamondback Energy and Parsley Energy immediately announced plans to cut spending and reduce drilling activity. Chevron said it needs $55 per barrel in order to cover its spending and shareholder payouts. Rystad Energy confirmed that just a handful of companies have breakevens lower than today’s oil price. In this situation a decline in US shale oil production of 1-2 million barrels/day (bpd) from current total US oil production of 13.1 million bpd is natural to expect.

Venezuela’s oil company PDVSA is this week offering discounts of up to $23 per barrel on its flagship crude, as a collapse in global oil prices puts more pressure on the state-run firm, already reeling from tightening U.S. sanctions. Production costs in Venezuela average between $10 and $12 per barrel, excluding a 33% royalty PDVSA pays to the government. The state-run firm has not disclosed annual reports since 2017. Even though it may be losing money on exports, PDVSA is unlikely to curtail shipments because there were already fewer buyers for its crude due to U.S. sanctions. Venezuela’s overall crude inventories rose by 1 million barrels last week to 35.2 million barrels, the highest weekly average since early February.

The U.S. sanctions on Iran’s oil sector are impacting Islamic Republic’s ability to potentially increase production in the long term if the U.S.-Iran tensions subside and sanctions ease. Iran relies 100 percent on imports for oil rig equipment, but the sanctions have stifled such imports from the U.S. and Europe. Iran continues to export oil. However, the primary buyer of Iranian oil under the ‘no exemption’ sanctions, China, is experiencing an unprecedented slowdown in oil demand due to the coronavirus outbreak, so it’s not clear how much oil Iran can place with its key customer in the coming months. Even in the event of the U.S. lifting the sanctions, Iran’s oil industry may need years to recover its oil production to levels last seen just before the sanctions were imposed in May 2018.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 7.7 million barrels from the previous week. At 451.8 million barrels, U.S. crude oil inventories are about 2% below the five-year average for this time of year. This compares with a moderate build of 800,000 barrels for the previous week. However, the EIA also reported a sizeable gasoline and distillate fuel draws for the week to February 28. For the week to March 6, fuel inventories registered hefty inventory draws. Crude stocks at the Cushing, Oklahoma, delivery hub rose by 704,000 barrels.

We expect bunker prices may continue downward trend today in a range of minus 5-9 USD.
Source: MABUX

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