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MABUX: Bunker market this morning, Jan.02.

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, 180 HSFO and MGO (Gasoil) in the main world hubs) demonstrated insignificant changes in the end of 2019:

380 HSFO - USD/MT - 378.01(-0.19)

VLSFO - USD/MT – 655.00(0.00)

MGO - USD/MT – 713.01(+0.94)

On January 1, 2020, emission limits came into force (IMO 2020). The situation in various regions of the world remains not entirely clear in terms of the availability of new 0.5% fuels, as well as in terms of prices for new fuel. In some ports there is a situation that the price of VLSFO is higher than traditional MGO. This situation may last for the next few weeks (months?) until the market comes to a balanced state.

Meantime, world oil indexes dropped on Dec.31, but notched the biggest annual gain in three years, supported by a thaw in the prolonged U.S.-China trade war and ongoing supply cuts from major oil producers.

Brent for March settlement dropped by $2.44 to $66.00 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for February decreased by $0.62 to $61.06 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $4.94 to WTI. Gasoil for January delivery lost $9.00.

Today morning global oil indexes demonstrate slight upward trend.

Brent gained about 23% in 2019 and WTI rose 34%, their biggest yearly gains in three years, backed by the recent breakthrough in the trade talks and output cuts pledged by the Organization of the Petroleum Exporting Countries (OPEC) and its allies. Forecasters do not expect oil prices to move sharply in either direction next year. Brent crude is expected to hover around $63 a barrel, down modestly from current levels, as OPEC production cuts offset weaker demand.

U.S. President Donald Trump said the Phase 1 trade deal with China would be signed on Jan. 15 at the White House. Signs of progress on the deal had boosted China’s factory output and manufacturing activity in the country expanded for a second straight month.

The Iranian Offshore Oil Company (IOOC) is currently implementing US$2.6 billion worth of projects expected to boost Iran’s offshore oil production by 85,000 barrels per day (bpd). The Iranian state-held offshore oil firm has awarded various projects to Iranian service contractors. The contracts include work on drilling, completion, and repair of 40 wells, as well as the construction and installation of wellhead equipment and five offshore platforms. Work is being done to boost oil production at the Siri field in the Persian Gulf under a contract with an Iranian company. Iran continues to export oil, especially to China, but it has drastically increased the secrecy of how it ships that oil abroad and says that it is using every means possible to export its crude.

China issued the first batch of oil product export quotas for 2020 and they are 53 percent higher than this year’s. At 28 million tons, the oil product export quotas will likely deepen an already serious glut of oil products on Asian markets that have eaten into refiner’s bottom lines. The quotas were issued to five state oil companies. It will be up to each of the companies to decide which fuels make what portion of their total quota, unlike in previous years. There has been mounting concern among refiners in other Asian countries during most of this year that surplus fuel production in China would spill into neighboring countries, undermining the profit margins of local refiners.

Gazprom and Ukraine’s Naftogaz finally reached a deal on the transit of Russian natural gas through Ukraine to Europe. There was concern in Europe that the two may fail to reach an agreement that would affect Russian gas deliveries to Europe given the tense political relations—and legal disputes—between the neighbors but, once again, pragmatism seems to have prevailed. The good news for Ukraine, for whom gas transit fees are vitally important, is that the agreement includes stipulations about guaranteed volumes of gas that Gazprom will send across Ukraine. These are 65 billion cubic meters for 2020, falling to 40 billion cubic meters for the period between 2021 and 2024. Gazprom has a 36-percent share of the European natural gas market, with European exports outside the former Soviet Union averaging 200 billion cubic meters. Of this, 86.8 billion cubic meters were transited through Ukraine last year.

Late Tuesday, the American Petroleum Institute (API) reported crude oil supplies fell by 7.8 million barrels for the week-ended December 27, to 436 million barrels. Traders were looking for a draw of 3.2 million barrels. Crude stocks at the Cushing, Oklahoma, futures delivery hub fell by 1.4 million barrels, and refinery crude runs rose by 74,000 barrels per day, the API data showed. U.S. crude imports fell last week by 447,000 barrels per day to 5.97 million bpd.

We expect bunker prices may start the year with a downward trend in a range of minus 3-9 USD.