Bunker prices may edge up next week, market participants turn focus on Doha's OPEC meeting
The Bunker Review is contributed by Marine Bunker Exchange
Bunker market ahead Doha's OPEC meeting on April 17.
World fuel market demonstrated rather firm upward trend on optimism ahead of a meeting in Doha. The latest support has been rendered by report that Russia and Saudi Arabia have reached an agreement that means the kingdom will decide on freezing production regardless of whether Iran participates. Russia’s Energy Ministry declined to comment on the report. At the same time the market predicts high potential risks should producers fail to complete their deal. About 16 countries - including most members of the Organization of Petroleum Exporting Countries, as well as non-members such as Oman and Azerbaijan - have agreed to meet in the Qatari capital on Apr.17.
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 Apr.08 – 14 have been surging as well:
380 HSFO - up from 160,43 to 176,57 USD/MT (+16,14)
180 HSFO - up from 205,93 to 219.36 USD/MT (+13,43)
MGO - up from 388,93 to 412.79 USD/MT (+23,86)
The tension ahead the meeting is rising and so does volatility. Saudi Arabia stated before that it was only prepared to abide by a freeze if all countries agree. On the other hand, if other countries raise their output, the kingdom will boost its own sales. Iran, which had sanctions on its crude exports lifted in January, has repeatedly made clear its intention to revive production.
Kuwait – one of the participants of Doha meeting - is targeting production of 3.165 million barrels a day later this year or in 2017, up from a current 3 million barrels a day. There are also plans to offer contracts for offshore rigs and support services to drill its first undersea wells as Kuwait tries to boost crude output to the highest level in more than four decades.
Crude output in Iraq, OPEC’s second-biggest producer, reached a record 4.55 million barrels a day last month from 4.46 million barrels in February. Production in southern Iraq, where most of the country’s biggest fields lie, will remain unchanged this year amid cuts in investment. Iraq is targeting total output to reach 6 million barrels a day by 2020, with most of the increase to come from the Basra region.
As a result of the meeting of South-American oil-producing countries at Quito last week, the participants considered the necessary steps should be taken to stabilize the global crude market in a bid to improve prices. Venezuela, one of the most vocal advocates of a freeze, reiterated its call for OPEC and non-OPEC nations to seek an oil price balance. It thinks the Organization of Petroleum Exporting Countries should wait five months after the Doha meeting before implementing cuts. Colombia in turn, while expecting to attend the meeting in Doha, doesn’t support the introduction of oil output quotas.
All in all the some forecasts for Doha meeting are rather restrained and skeptical. As per Goldman Sachs Group Inc., the meeting will do little to boost prices, and may even cause them to fall: if countries fail to reach a firm agreement, it could deliver a “bearish catalyst” for prices. Forecast also said that OPEC production could actually increase, rather than staying stable or diminishing. The group could revive about 500,000 barrels a day of halted supplies if production resumes in Iran, Libya and the Neutral Zone shared by Saudi Arabia and Kuwait.
Another key factor: the number of active U.S. oil rigs has dropped steadily. Drillers cut 8 oil rigs in the week to April 8, bringing the total rig count down to 354 from 1,609 rigs in October 2014. It have been idled more than 180 machines this year.
Present decline in U.S. shale production could be a sign that the global oversupply may slowly diminish. The Energy Information Administration predicts output from U.S. shale will drop to 4.84 million barrels a day in May, the lowest level in almost two years. A decline of 115,000 barrels a day in U.S. oil-shale output from April to May would be the largest month-to-month drop on record.
China’s crude imports climbed to a record in the first quarter as higher refining margin encouraged refiners to boost purchases. Inbound shipments increased to 91.1 million metric tons in the first three months of the year: equivalent to about 7.34 million barrels a day. It is 6 percent higher than the previous quarter and 13 percent up from the same period last year. Refiners are importing more oil to take advantage of local retail fuel prices that are frozen when oil trades below $40 a barrel. China’s net oil-product exports jumped to 1.3 million tons in March as well. It is expected China may surpass the U.S. as the world’s largest crude importer this year with average inbound shipments of 7.5 million barrels a day.
As a resume, meeting on April 17 is expected to be the key point in determining further trend on global fuel market. Success will support fuel indexes while failure will bring the prices further down. We, however, are optimistic and hope the meeting at Doha may at least set up the stable platform for further steps to re-balance the global fuel market in the near future. Bunker prices may continue slight upward trend 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)
