MABUX World Bunker Index (consists of a range of prices for 380 HSFO, VLSFO and MGO (Gasoil) in the main world hubs) continued firm upward move on May 18:
380 HSFO – USD/MT – 239.31 (+3.80)
VLSFO – USD/MT – 278.00 (+8.00)
MGO – USD/MT – 342.14 (+6.62)
Meantime, world oil indexes rose on May 18 supported by optimism about the re-opening of economies and output cuts by major producers.
Brent for July settlement increased by $2.31 to $34.81 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for June delivery rose by $2.39 to $31.82 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $2.99 to WTI. Gasoil for June delivery gained $33.00.
Today morning global oil indexes do not have any firm trend so far.
U.S. petroleum consumption has started to rise as the economy emerges from lockdowns imposed to control the spread of the new coronavirus, giving the oil industry hope it has come through the lowest point in the cycle. Similar recoveries in fuel consumption are expected at varying rates across the other major economies as they gradually emerge from lockdown and are likely to push the oil market into supply deficit in the third quarter. In most cases, the recovery in petroleum demand is expected to be led by middle distillates, as the manufacturing, construction and freight transportation sectors return to work. The result will be an increase in relative demand for light distillates (gasoline) compared with middle distillates (diesel but especially jet), which the refining system will have to accommodate.
Chinese refineries increased their run rates by 11 percent last month as the country began to emerge from the months-long lockdown prompted by the coronavirus outbreak that became a pandemic. At 13.1 million bpd, the April run rates were also higher than the average for the same month in 2019, although by less than 1 percent. Refinery runs are expected to continue to rise as industrial activity in China recovers to normal levels. Capacity utilization rates at independent refiners rose to 73 percent last month, according to data cited by Reuters, which was a record high. Meanwhile, at state refiners, utilization rates have increased to an average of 79 percent this month. The news indicates a marked improvement in oil demand, at least from refineries in the world’s top oil importer.
Meantime, China is taking advantage of the cheapest crude oil in years to stock up. At present, a total of 117 very large crude carriers (VLCCs) – each capable of shipping 2 million barrels of oil – are traveling to China for unloading at its ports between the middle of May and the middle of August. If those supertankers transport standard-size crude oil cargoes, it could mean that China expects at least 230 million barrels of oil over the next three months. The fleet en route to China could be the largest number of supertankers traveling to the world’s top oil importer at one time, ever.
Russia’s oil producer, Rosneft, confirmed on May 15 that it had discontinued all operations in Venezuela, including in joint ventures, trading, and oilfield services, as the top Russian firm looks to avoid further U.S. sanctions because of its business with Venezuela. Earlier this year, Rosneft announced the sale of its Venezuelan assets to a company 100-percent owned by the Russian government. Meanwhile, Russia’s top oil producer reported a net loss of US$2 billion for the first quarter of 2020, due to the low oil prices and the depreciation of the Russian ruble. The Q1 loss compares to a net profit of US$1.9 billion for the first quarter of 2019.
Scrubber installations have taken a pause. In recent weeks, several publicly listed tanker companies announced their decisions to postpone scrubber installations. There has been no mention of a dramatic decline in bunker prices and lower spreads between very low sulphur fuel oil (VLSFO) and high sulphur fuel oil (HSFO). The Covid-19 driven collapse in oil demand saw the differential between the two bunker fuels fall as low as $50-$60/tonne in March and April, compared to around $275-$300/tonne spread back in January 2020. As a result, the premium in spot earnings for scrubber equipped vessels declined substantially. On the other hand, Wartsila announced a decline in new marine orders, largely due to a lack of scrubber investments. A similar trend has been confirmed by the classification society DNV GL, which also reported a slowdown in scrubber orders during the 1st three months of the year.
Brazilian state-run oil firm Petrobras sees no need for short-term cuts in oil production, as the market for some of its products abroad remains robust. On the same call, Company credited the firm’s strong relationship with independent refineries in China’s Shandong Province for maintaining strong crude exports to China.
We expect global bunker prices may demonstrate firm upward evolution today in a range of plus 10-25 USD.