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2020-02-11

MABUX: Bunker market this morning, Feb.11.

MABUX World Bunker Index (consists of a range of prices for 380 HSFO, VLSFO and MGO (Gasoil) in the main world hubs) demonstrated firm downward trend Feb.10:

380 HSFO - USD/MT 359.46(-5.97)

VLSFO - USD/MT 548.00(-10.00)

MGO - USD/MT 600.32(-5.75)

Meantime, world oil indexes extended their decline on Feb.10 on weaker Chinese oil demand in the wake of the coronavirus outbreak and as traders waited to see if Russia would join other producers in seeking further output cuts.

Brent for April settlement decreased by $1.20 to $53.27 a barrel on the London-based ICE Futures Europe exchange. West Texas Intermediate for March fell by $0.75 to $49.57 a barrel on the New York Mercantile Exchange. The Brent benchmark traded at the premium of $3.70 to WTI. Gasoil for February delivery lost $12.75.

Today morning global oil indexes have turned into slight upward evolution.

OPEC saw its crude oil production dip by nearly 500,000 bpd in January from December, overcomplying with the collective cut. However, even with 128-percent January compliance, OPEC could be in for another round of deeper cuts as the cartel and its non-OPEC allies led by Russia are considering additional reductions to prevent a massive oversupply as the virus outbreak in China is inflicting the worst oil demand shock to markets in more than a decade. The technical panel of the OPEC+ coalition is recommending an additional cut of 600,000 bpd in response to the lower oil demand, but nothing concrete has been decided.

The coronavirus outbreak shows no immediate signs of slowing down, with the death toll climbing above 900 over the weekend, overtaking that of the SARS outbreak almost two decades ago, and with over 40,000 people affected. Some manufacturers reopened their offices on Feb.10 in China, but a large number of workplaces still remain closed and many white-collar workers will continue to work from home. The toll on China's already-slowing economy has been heavy: Goldman Sachs cut its first quarter GDP target to 4% from 5.6% previously and said an even deeper hit is possible. Refinery run rates for independent refiners slowed down and it has led to a sharp increase in crude oil inventories in the country over the last 2 weeks.

Russia said it is ready to renew energy cooperation and dialogue with the United States. It was also noted that U.S. sanctions on Russia’s energy sector hampered the development of mutually beneficial cooperation and are an example of unfair competition. The U.S. sanctions ban collaboration on Russian deepwater, Arctic offshore, or shale projects with Gazprom, Gazprom Neft, Lukoil, Surgutneftegas, and Rosneft. These are the largest energy firms in Russia, and they don’t have access to capital at western banks to develop such projects. In the wake of the sanctions, many Western oil firms withdrew from joint ventures with Russian companies, which are now left without partnerships in technology needed to explore, drill, and potentially produce and process hard-to-extract oil and gas resources.

The United States in turn is considering whether to sanction Rosneft over its continued business with Nicolas Maduro’s regime. The U.S. administration, however, is concerned that sanctions on Rosneft—a key trading partner for Venezuelan oil—would create chaos on the market and push oil prices up. Rosneft has four joint ventures with PDVSA that produce oil and it also became the largest receiver of Venezuelan crude oil last year: the Russian company sold the oil on behalf of PDVSA and kept the proceeds as payment on billions of dollars in loans to the embattled Venezuelan company.

Meantime, Russian Rosneft has decided that its India bound shipments will avoid the Strait of Hormuz, which is in the cross-hairs of military tensions between the United States and Iran. The decision is in tune with India’s call on diversifying energy sources, and lowering reliance on the Persian Gulf. The contracted oil will be loaded in Suezmax vessels at Novorossiysk port of Russia and will come to India, bypassing Straits of Hormuz. The oil contract appears part of deeper energy engagement between New Delhi and Moscow, covering Russia’s resource rich Far East as well as the Arctic zone. It is expected that Indian oil companies will join the $157 billion Vostok oil development project in the Arctic. Rosneft also wanted Japanese investors to pitch in 10 to 40% of development costs of the Vostok project. China was also on the list.

We expect bunker prices may continue downward trend today in a range of minus 5-10 USD.

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