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World fuel indexes have demonstrated slight upward trend during the week. There are the signs that fuel markets are only a few months away from a much closer balance as demand holds steady and supply drops off.
At present fuel prices are near the highest since November as supply interruptions in Nigeria, Libya and Venezuela balance an increase of 600,000 barrels a day in Iran's April crude exports. Increases are now likely to slow although the country is looking to bring at as much as 300,000 barrels a day of capacity this year on line at fields in the West Karoun region.
MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO at the main world hubs) continued slight irregular changes in the period of May 12 - May 19:
380 HSFO - up from 206,64 to 210,79 USD/MT (+4,15)
180 HSFO - up from 250,57 to 251.36 USD/MT (+0,79)
MGO - up from 450,79 to 461.86 USD/MT (+11,07)
The main drivers of the week were different reports and analysis presented by international institutions. The International Energy Agency (IEA) estimates global supply will exceed demand by an average of 1.3 million barrels a day in the first six months of the year - down from the 1.5 million it projected a month ago - following surprisingly strong consumption in the first quarter. The diminished glut indicates that OPEC's policy to let lower crude prices re-balance world markets is taking effect. Strength in the first quarter was driven by China, Russia and by transport fuel use in India. Production from the Organization of Petroleum Exporting Countries reached its highest level since 2008 (total to 32.76 million barrels a day) as Iran restored output previously constrained by international sanctions (it pumped 3.56 million barrels a day in April).
Goldman Sachs Group Inc. for its part expects the physical rebalancing of the oil market has finally started. The unexpected outages caused by wildfires in Canada and pipeline attacks in Nigeria will keep the market in deficit through the second half of this year. Meantime, the return of some of the output and higher-than-expected U.S., North Sea, Iraq and Iran production means the bank predicts the shortfall will be at 400,000 barrels a day versus the 900,000 previously expected. A shift back to a surplus is seen in early 2017.
U.S. oil production has fallen to 8.8 million barrels per day as of early May and rigs targeting crude in the U.S. decreased to 318 after 10 were idled last week, taking the loss in U.S. oil production to about 900,000 barrels per day since April 2015. Also, despite the supply disruptions and the solid declines in U.S. oil production, storage levels are still at record highs. The EIA reported another gain by 1.3 million barrels in storage levels in its weekly report to 541.3 million barrels. High oil storage levels will have to be worked through before fuel prices can rise substantially.
Decline of China's crude production amid record-high demand from its oil refineries is helping tighten a global market recovering from a glut as well. Output in April fell by the most since November 2011 to the lowest in 14 months. Meanwhile, the country's refineries processed a record 10.93 million barrels a day of oil.
Data from Iran shows oil exports from the country are recovering faster than analysts had expected: exports are set to surge in May to 2.1 million bpd, nearly 60 percent above their level a year ago.
Saudi Arabia's Deputy Crown Prince Mohammed bin Salman said just ahead of the failed Doha talks in April that Saudi Arabia had the ability to ramp up oil production by 1 mb/d in the near-term, a threat that could push oil prices down. Meantime, Saudi Arabia's crude oil stockpiles fell in March for the fifth month in a row reaching the lowest level in 18 months (to 296.7 million barrels in March from 305.6 million barrels in February) as the kingdom kept shipping crude to meet customer demand while keeping a lid on production.
Iraq has boosted output after decades of sanctions. The country is exporting 3.3 mil-lion barrels a day of crude this month from the southern port of Basrah, and it targets keeping shipments at that level for the rest of the year. However, parts of northern Iraq are still a battleground for forces trying to dislodge the Islamic State militants who have occupied swathes of territory since 2014. The conflict has prevented the government from exporting oil through its northern pipeline to Turkey and threaten to stop future investment in Iraq.
Venezuela is triggering fears of default by its national oil company PDVSA, which has to make almost $5 billion in bond payments this year. Venezuela's oil production has already fallen by at least 188,000 bpd since the start of the year as PDVSA struggles to make the necessary investment to keep output steady. At the same time Venezuela began to offer oil at the biggest discounts in seven years as the country fights to defend its market share from Canadian and Middle Eastern grades.
At least a fifth of Nigerian oil production, equivalent to almost 400,000 barrels a day, has been shut down as a pipeline closure added to disruptions caused by militant attacks. International producers including Shell and Chevron began evacuating non-essential workers and contractors from major oil production facilities as a precautionary measure. Formerly the continent's largest oil producer, the nation has slipped into second place after Angola.
We expect rebalancing process on the global fuel market may continue next week and so bunker prices may continue slight upward trend.
Source: Marine Bunker Exchange