Fall 2016 Newsletter - Bunker Prices - Recent Activity

Fall 2016 Newsletter.pdf

Fall 2016 Full Article.pdf

Recent months’ activity has resembled a rollercoaster ride with all the ups and downs seen in all regions that we report on. When looking at the most recent months, July decreased across the board from June’s ending prices, but then by end of August, all regions were back up. Interestingly enough, despite the volatility seen, we have edged very close to where prices were one year ago end August, with three areas within 5% of last year’s prices. Fujairah has always lagged in response to changes in factors influencing prices, so it is still about 24% off from last year. Fujairah did post a 2.58% increase end August, closing at US$ 516.0/mt from July’s US$ 503.0/mt. August 2015 closed at US$ 676.5/mt, so Fujairah is still lagging behind last year by 23.73%. The rest of the regions we report on are more responsive to price factors. In the US, Houston posted a 12.16% increase over July’s US$ 419.50, closing at US$ 470.5/mt, which is only 2.99% below August 2015’s US$ 485.0/mt. Rotterdam also posted a double-digit increase over July closing up 15.37% at US$ 424.0/mt from US$ 367.5/mt. August 2015 was only 4.72% higher at US$ 445.0/mt. Rounding out the regions we regularly monitor is Singapore, which saw a 9.85% gain in August, closing at US$ 429.5/mt from US$ 391.0/mt. Singapore has regained the most ground from a year ago, as end of August it was only 2.72% or US$ 12.0/mt lower. We fully expect to continue seeing the up and down swings in prices given all that is happening in the world today. Overall, we are still seeing layups, layoffs and general hesitation to invest in projects and markets. The rollercoaster ride is not over yet and it is anyone’s guess as to how long we have to go before we see some semblance of stabilization.

We monitor the Pacific OPIS contract average weekly prices of ultra-low sulphur diesel as these prices directly impact vessel operators on the West Coast. Trends in Pacific OPIS tend to mirror those seen in the MGO price changes. As of the week ended August 19th, 2016, we saw increases during August in all West Coast locations tracked. For the week ending 19th August 2016 compared to the week ending 29th July 2016, Seattle rose 6.76% to US$ 2.0109 per gallon from US$ 1.8835/gal. Portland, OR grew 6.62% to US$ 2.083/gal (US$ 1.9536/gal). San Francisco increased 3.70% to US$ 2.1018/gal from US$ 2.0269/gal. “So. California Tugs”, comprised of Los Angeles / Long Beach, gained 8.62% to US$ 2.1179/gal from US$ 1.9499/gal. In August, Hawaii rose 4.26% to end at US$ 1.96/gal from US$ 1.88/gal. As with the MGO prices, we are very close to last year’s prices as compared to average weekly prices for week ending August 21st, 2015, prices are within +0.45% in Seattle, to -4.80% in Los Angeles / Long Beach.

We have found that Kirby Corp. provides a good snapshot of the inland river market in the US. Their most recent data shows that their average 241 towboats operating 901 inland tank barges paid an average of US$ 1.35/gal during second quarter 2016, compared to $1.27/gal the prior quarter and $2.03/gal during same quarter 2015. The tank barge utilization levels of Kirby’s inland marine transportation markets declined modestly in the 2016 second quarter into the high-80% to low-90% range compared to the 90% to 95% range for the 2016 first quarter and the 2015 second quarter. The decline was largely attributable to a shortened spring season for agricultural chemical products and soft demand in trading and refinery volumes which was largely related to high inventory levels. Demand for barges moving petrochemicals was stable. Refined petroleum product volumes increased in the 2016 second quarter as a result of the Seacor acquisition in April 2016. During the 2016 second quarter, operating conditions were seasonally normal, although high cross currents at floodgates and river crossings on the Gulf Intracoastal Waterway led to congestion and added delays at certain points along the Gulf Coast.

According to the Paris-based, International Energy Agency’s “Oil Market Report”, crude oil prices eased to around $45 bbl in August as a global supply overhang weighed and demand growth weakened. Brent crude had threatened to break below $40 bbl at the end of July. Global oil demand growth is expected to slow from 1.4 mb/d in 2016 to 1.2 mb/d in 2017, as underlying support from low oil prices wanes. The 2017 forecast – though still above-trend – is 0.1 mb/d below our previous expectations due to a dimmer macroeconomic outlook. The 2016 outlook is unchanged from last month’s Report. Global oil supply rose by about 0.8 mb/d in July, as both OPEC and non-OPEC production increased. Output was 215 kb/d lower than a year earlier, as declines from non-OPEC more than offset an 840 kb/d annual gain in total OPEC liquids. Non-OPEC production is forecast to drop by 0.9 mb/d this year before rebounding by 0.3 mb/d in 2017. OPEC crude oil output rose by 150 kb/d to 33.39 mb/d in July as Saudi Arabia pushed output to the highest ever and Iraq pumped more. Robust Middle East production lifted total OPEC crude supply 680 kb/d above a year ago and held output at an eight-year high. Global refinery throughput in 3Q16 is expected to rise by 2.2 mb/d from a weak 2Q16 to a record 80.6 mb/d. At only 0.6 mb/d above a year earlier, 3Q16 runs will lag expected demand growth, eroding some of the product stock cushion built up since mid-2015. Runs are forecast to decline seasonally to below 80 mb/d in 4Q16. An OECD inventory overhang continued to shift from crude into products during June, with commercial stocks swelling by 5.7 mb to a record 3 093 mb., Declines in crude oil holdings were offset by an above average product build of 15.9 mb, with big volumes of US propane and other NGLs moving into storage.

Per the latest U.S. Energy Information Administration’s “Short-Term Energy Outlook”, the monthly average spot price of Brent crude oil decreased by $3/b in July to $45/b, which was the first monthly decrease since January 2016. Significant outages of global oil supply contributed to rising oil prices during the second quarter of 2016. However, concerns about future economic growth related to the United Kingdom’s June 23 vote to exit the European Union and the easing of supply disruptions in Canada contributed to falling oil prices in late June. Prices continued to fall in July because of concerns about high levels of U.S. and global petroleum product inventories, despite relatively strong demand, and because of growing U.S. oil rig counts. The Baker Hughes U.S. active oil rig count increased for six consecutive weeks in July and early August, the longest stretch of weekly increases in almost a year. EIA expects global oil inventory builds to average 0.5 million b/d in the second half of 2016, limiting upward price pressures in the coming months. Brent prices are forecast to average $43/b during the second half of 2016. However, daily and even monthly price variations could be significant as economic and geopolitical events affect market participants’ expectations of oil market balances. EIA expects consistent global oil inventory draws to begin in mid-2017. The expectation of inventory draws contributes to accelerating price increases in the second quarter of 2017, with price increases continuing later in 2017. Brent prices are forecast to average $52/b in 2017, unchanged from last month’s STEO. Forecast Brent prices average $58/b in the fourth quarter of 2017, reflecting the potential for more significant inventory draws beyond the forecast period. Average WTI crude oil prices are forecast to be slightly less than Brent prices in 2016 and the same as Brent prices in 2017.

The U.S. Energy Information Administration forecasts that U.S. crude oil production is projected to decrease from an average of 9.4 million b/d in 2015 to 8.7 million b/d in 2016 and to 8.3 million b/d in 2017. The forecast reflects declining Lower 48 onshore production that is partly offset by growing production in the federal Gulf of Mexico. EIA estimates that total U.S. crude oil production has fallen by 1.1 million b/d since April U.S. Energy Information Administration | Short-Term Energy Outlook August 2016 6 2015 to an average of 8.6 million b/d in July 2016. Almost all of the production decline was in the Lower 48 onshore. Based on the current oil price forecast, EIA expects oil production to continue declining in most Lower 48 onshore oil production regions through mid-2017. The expectation of reduced cash flows in 2016 and 2017 has prompted many companies to scale back investment programs, deferring major new undertakings until a sustained price recovery occurs. The prospect of tighter lending conditions will likely limit the availability of capital for many smaller producers, giving rise to distressed asset sales and consolidation of acreage holdings by firms that are more financially sound. Lower onshore investment is expected to reduce the count of oil-directed rigs and well completions for the remainder of 2016 and 2017. The current price outlook is expected to limit onshore drilling and well completions, despite continued increases in rig and well productivity and falling drilling and completion costs. The increase in oil prices between February 2016 and June 2016 contributed to active rig counts rising from 404 in late May to 464 for the week ending August 5. However, this total is still down from more than 600 rigs in January 2016. In EIA’s forecast, low rig counts continue to limit production through 2017.

Refinery wholesale gasoline margins (the difference between the wholesale price of gasoline and the price of Brent crude oil) averaged 42 cents/gal in July. This level was similar to the previous five-year average for July of 41 cents/gal but lower than the 73 cents/gal average in July 2015, partly because of higher U.S. gasoline production and inventory levels. Higher gasoline inventories have contributed to falling gasoline margins despite gasoline consumption U.S. Energy Information Administration | Short-Term Energy Outlook August 2016 5 having been 2.3% higher through the first seven months of 2016 compared with the same period last year according to EIA estimates. The U.S. average regular gasoline retail price decreased to $2.24/gal in July, 13 cents/gal lower than in June, reflecting lower crude oil prices and elevated seasonal gasoline inventories. Monthly average retail gasoline prices for July 2016 ranged from a low of $2.03/gal in the Gulf Coast—Petroleum Administration for Defense District (PADD) 3—to a high of $2.72/gal in the West Coast (PADD 5). EIA expects that the monthly average price of U.S. regular gasoline reached an annual peak in June of $2.37/gal, with lower prices expected in the second half of 2016.