Analysis
Integr8: Singapore VLSFO at its lowest price in 20 months; what’s next?
Article discusses what lies ahead after monthly average prices for VLSFO in Singapore and Rotterdam are below their levels prior to Russian invasion of Ukraine, their lowest for 20 months.
By Steve Christy, Research Contributor, Integr8 Fuels
[email protected]
29 May 2023
We have the lowest bunker prices in almost two years
For a number of months we have been ‘banging on’ about the analysts’ view of stronger oil fundamentals and higher prices, versus the reality of declining oil prices, and so lower bunker costs in our sector.
We are now at a point where monthly average Singapore and Rotterdam VLSFO prices are below their levels just prior to the Russian invasion of Ukraine, and at their lowest for 20 months. In fact, Singapore VLSFO prices have almost halved from their peak just 11 months ago.
Can bunker prices go lower?
As we have seen over the past three years, forecasting prices can be a difficult challenge, especially in our area, which has been heavily influenced by a pandemic, let alone politics and war. So, the answer is: yes, prices can continue to slide.
Over the past 3-4 months market sentiment has strayed away from those bullish analytical forecasts and centred on some very worrying global economic developments. But we may now be at a ‘breathing space’ in the market, and if nothing else major happens like even higher inflation rates, significant hikes in bank rates or banks collapsing, then the industry may come back to look at what the analysts are saying. They haven’t really changed their fundamental views, and so if this does happen, then there will be a generally more bullish sentiment coming through.
Oil production could remain near unchanged through the next 6 months
In our report a month ago, we focused on oil production and how this is likely to be constrained over the rest of this year if key OPEC+ countries abide by their commitments to cut around 1.2 million b/d of supply (watch OPEC+ was the mantra). Forecast gains in non-OPEC+ production are similar to the planned OPEC+ cutbacks, and so on this basis oil supply would be relatively flat through the rest of this year.
After OPEC+, it comes down to demand
In this report we are focusing on oil demand. Current forecasts are that global oil demand will hit an all-time high this year, at an annual average of 102 million b/d. This is up 2 million b/d on last year and surpasses the pre-pandemic high of close to 101 million b/d seen in 2019.
For all the talk of electrification in the auto sector, and anti-oil protests, global demand for oil is still rising, and is projected to continue rising for another 10 years or more. Electric vehicles will one day dominate and total oil demand will fall, it’s just that this is likely to be into the 2030s at the earliest.
The focus on demand definitely lies with China
Coming back to more recent developments and the demand outlook for the rest of this year. The graph below illustrates year-on-year changes in oil demand by main region. The two main points here are that through the earlier parts of last year it was the OECD countries that were coming out of lockdown and driving increases in global oil demand (with China maintaining strict lockdowns). Now growth in OECD countries has stalled to only minimal levels and it is China that is the focus and powerhouse of new growth, with lockdowns finally removed and the economy ‘getting back into gear’.
This story on Chinese oil demand is gaining momentum, with latest (March) data indicating an all-time high at 16 million b/d (this compares with the US at 20 million b/d, and the two countries combined, accounting for 35% of world oil consumption). Domestic air travel has also ‘taken off’, and is also back to pre-pandemic levels. Most analysts are indicating continued growth in these transport sectors, with a boom in international air travel on the cards for the second half of this year (at the moment international air travel is only around 70% of its pre-pandemic level).
The graph below illustrates the forecast year-on-year growth in Chinese oil demand for this year by product, and clearly shows the emphasis on the air and road transport fuels of jet and gasoline. It is obviously that analysts looking at a strong growth in global oil demand this year are ‘pinning their hopes’ on these two products in China.
Growth in naphtha demand in China is also very strong, with the major expansion in domestic petrochemical capacity.
In contrast, gasoil demand in China appears to be weak and this is a major concern because gasoil tends to be a ‘backbone’ to industrial activity. This does have further ramifications beyond the Chinese domestic market, as it is likely to limit any increase in exports and international trade. It also means a widening gap between levels of personal spending and industrial activity within China. However, the gains in travel are expected to far outweigh any limitations in the industrial sector.
Will market sentiment shift back to reflect what analysts are saying?
The IEA, Goldman Sachs, OPEC and the US EIA are some of the groups forecasting a tighter fundamental oil balance as we go through the rest of this year. There are some others that are less optimistic about China’s prospects and have greater concerns over economies in the OECD, but at the moment these seem to be in a minority.
It goes without saying that if there are heightened war or global political issues, then bunker prices are more likely to rise than fall. But summarising here, the fundamental outlook lies with the announced cuts in oil production from a few OPEC+ countries, along with the demand issues laid out in this report; in particular what is going to happen to oil demand in China. If no big, economic stories hit the headlines, and the sentiment shifts back to what various analysts are saying, then jet and gasoline demand in China will be a cornerstone in their thinking and oil prices over the rest of this year, including for us in bunkers.
Photo credit and source: Integr8
Published: 14 June, 2023
Bunker Fuel
Integr8: What is driving increased bunker prices and how quickly can they fall?
Integr8 breaks down the fundamentals that are behind the price hikes, specifically, what is happening on supply side in Saudi oil production and what is behind demand increase coming from China.
By Steve Christy, Research Contributor, Integr8 Fuels
[email protected]
28 September 2023
VLSFO prices have been on another rise
A month ago, we wrote about high bunker prices which were based on two key factors: Tightness in most product markets; And additional oil production cutbacks by Saudi Arabia. Now, bunker prices are even higher.
Brent has moved above $90/bbl, with Singapore VLSFO above $660/mt and close to peak levels seen at the start of this year. Rotterdam VLSFO has been trading at around $615-635/mt, its highest so far this year. More recently Rotterdam prices have eased slightly but they are still above this year’s previous peaks, and Singapore prices remain at high levels.
Much tighter fundamentals are behind the price hike
On a very short-term basis, the market can see dramatic price shifts, but it is normally the fundamentals that drive price direction over a period of weeks and months. We are now in a strong fundamental period, with year-on-year growth in global oil demand at 3 million b/d in Q2 this year and projected at 2 million b/d in Q3 and Q4. The key factor here is growth is almost entirely centred on China.
At the same time there are huge constraints in oil supply, with the additional 1 million b/d voluntary cut made by Saudi Arabia, starting in July. In fact, part of the recent price hike is that Saudi Arabia has recently committed to extending these additional cuts through to the end of this year.
Additionally, the September 21st announcement by Russia which banned all diesel and gasoline exports to support their own domestic market and, we can see clear reasons why oil prices have taken another leap higher over the past month.
On the supply side, it is what’s happening to Saudi oil production
Saudi Arabia’s stated policy is aimed at supporting a market with less volatility, and more sustainable and predictable outcomes. As part of this strategy, the country had reduced crude output by 0.5 million b/d in line with the overall OPEC+ agreement, and then made a further 1 million b/d cut over the second half of this year. The net result is that Saudi crude production has fallen sharply over the past few months and is currently some 1.5 million b/d lower than average 2022 levels (8.9 million b/d in August vs an average of 10.4 million b/d last year). This lower level of output is expected to be maintained through to the end of the year.
Looking at alternative crude supplies, US production crude production is near record highs and higher oil prices has incentivised even greater investment in US shale oil. However, the problem here is Saudi cuts are instantaneous and any rise in US shale production from new investment takes months. Hence, current signals are for a potential tightness in supply over the rest of this year, before an expected 1 million b/d hike in January as Saudi crude output climbs back towards 10 million b/d.
On the demand side it is all about China, China, China
Fundamentals on the demand side also point to higher oil prices. As mentioned, increases in global oil demand are running at 2-3 million b/d (year-on-year), and these are big numbers. However, they are almost entirely based on what is happening in China; product demand developments elsewhere are minimal, and even falling in Europe and projected to start falling in the US next year.
The reason for current very high year-on-year growth rates in China is that the country was still largely in lockdown through 2022, and the easing has only taken place this year. This is much later than almost all other countries worldwide, where the post-pandemic ‘boom’ took place in 2022, not 2023. Therefore, it is more-or-less China alone that is driving up oil demand this year.
Clearly there is a risk of weaker demand than forecast in many countries but if we are looking for a big price impact from the demand side, then it is more likely to be stories about China that are going to drive prices up or down.
Market tightness in Q3 & Q4, but potentially changing going into 2024
Bringing together these more extreme developments in supply and demand, the graph below illustrates global fundamentals on a quarterly basis. The key for us is that global oil supply exceeded demand through most of 2022 and in the first quarter of this year, resulting in an ongoing global stock build. However, we have just been through a turning point, where demand is exceeding supply in Q3 this year and this is expected to be repeated in Q4, leading to stock draws.
It is not until the start of next year that we see a reversal and another turning point is envisaged. It is at this stage; Saudi Arabia says it will lift its voluntary 1 million b/d cutbacks. At the same time year-on-year growth in oil demand is expected to ease back to around 1 million b/d. So, at the start of next year oil supply is projected to exceed demand once again, reverting us back to a world of stock builds.
Summarising by looking at the global stock build/stock draw positions, we can see the exceptional times we are currently in; Having moved to a position of stock draws in Q3 and projected for Q4 this year. In addition, the tightness in global stocks lies with oil products, and not crude oil. This has been driven by high product demand and exacerbated by several unplanned refinery outages this year.
Going into next year the position looks like reversing again, going back to a fundamental global stock build.
What’s next?
Given the fundamentals, these developments explain the wave of price rises we have seen in September.
Looking ahead over the rest of this year and into 2024, on the demand side China is the main story. Of course, Chinese demand could be higher than currently projected, in which case Brent crude could easily pass the $100/bbl ‘barrier’, along with Singapore VLSFO going above $700/mt.
However, the chatter at the moment is about weakness in the Chinese economy. If this translates to lower oil demand, then it will be a sign ‘to sell’, and prices for us all would come down. This is clearly the story to watch on the demand side.
The supply side seems more predictable - When Saudi Arabia announces the additional cutbacks will be eased (or there are strong indications of this), then oil prices are likely to fall. A reversal of the Russian ban on diesel and gasoline exports could also have a bearish impact.
Timing is everything in all these developments, and the extent of any fall in prices may still be dependent on how tight oil product stocks are at the time and what stocks look like doing in the near term.
Being precise on price movements is difficult, but we know prices never wait for the fundamentals to be borne out; Markets react on news, changes, and psychology. If the fundamentals do play out as shown in this report, then prices are more likely to fall before the end of the year, in anticipation of weaker fundamentals going into 2024. Let’s see what happens…..
Photo credit and source: Integr8
Published: 4 October, 2023
Analysis
ENGINE: Europe & Africa Bunker Fuel Availability Outlook (20 Sep 2023)
HSFO availability “super tight” in Gibraltar; South African authorities impound barges for tax violations; VLSFO and LSMGO supply normal in most Mediterranean ports.
Bunker Fuel
JLC China Bunker Market Monthly Report (August 2023)
Country sold roughly 1.80 million mt of bonded bunker fuel in the month, with the daily sales rebounding by 11.80% from the previous month to about 58,065 mt, JLC’s data indicates.
Beijing-based commodity market information provider JLC Network Technology Co. recently shared its JLC China Bunker monthly report for August 2023 with Manifold Times through an exclusive arrangement:
Bunker Fuel Demand
China’s bonded bunker fuel sales rally in August
China’s bonded bunker fuel sales rallied in August, because of multiple factors.
The country sold roughly 1.80 million mt of bonded bunker fuel in the month, with the daily sales rebounding by 11.80% from the previous month to about 58,065 mt, JLC’s data indicates.
The sales by Chimbusco, Sinopec Zhoushan, SinoBunker and China ChangJiang Bunker (Sinopec) were 580,000 mt, 650,000 mt, 80,000 mt and 40,000 mt, respectively. Meanwhile, suppliers with regional bunkering licenses tallied about 450,000 mt of bonded bunker fuel sales.
Though the negative impact of bad weather lingered in Zhoushan and Ningbo, more shipowners came to refuel as bonded bunker fuel prices in the two regions were more competitive than those in Singapore. Meanwhile, the barging capacity at Shandong ports recovered to some degree, which also drove up the sales. On the other hand, however, the barging capacity at southern ports was insufficient amid tighter customs inspections, leading to a dip in the sales in South China.
China’s bonded bunker fuel exports drop in July
China’s bonded bunker fuel exports dropped in July, because of inclement weather and some other factors, despite a modest increase in domestic low-sulfur fuel oil (LSFO) production.
The country exported about 1.62 million mt of bonded bunker fuel in the month, down by 20.82% month on month and 4.63% year on year, JLC estimated, with reference to data from the General Administration of Customs of PRC (GACC).
Specifically, heavy bunker fuel exports amounted to about 1.53 million mt, accounting for 94.70% of the total, while light bunker fuel exports settled at 85,700 mt, making up 5.30%.
Regarding the exports by supplier, enterprises with national bunkering licenses exported roughly 1.30 million mt, accounting for 80.73% of the country’s total, with Sinopec Fuel Oil and Chimbusco taking 71.68%. Meanwhile, enterprises with regional licenses exported 311,500 mt, accounting for 19.27%, with PetroChina Fuel Oil (Zhoushan, Shanghai and Guangzhou) taking 194,800 mt which occupied 12.07% of China’s exports and 62.54% of regional suppliers’ total.
Bunkering business at some Chinese ports was disturbed by rains and typhoons, dragging down China’s bonded bunker fuel exports. Meanwhile, some shipowners’ refueling demand was also depressed by bad weather, which added to the downward pressure on the exports.
On the other hand, domestic bunker fuel supply increased moderately amid larger LSFO production, putting a cap on the decline in the exports. China produced about 1.35 million mt of LSFO in July, up by 61,000 mt or 4.73% month on month, with the daily output up by 1.35% to 43,548 mt, JLC’s data shows.
In the first seven months, China’s bonded bunker fuel exports totaled about 12.03 million mt, growing by 6.38% from the same months in 2022, slowing down from a boost of 8.32% in the first six months.
Domestic-trade heavy bunker fuel demand climbs further in Aug
Domestic-trade heavy bunker fuel demand climbed further in August, as most shipowners resumed voyages after typhoons and bullish sentiment popped up in the shipping market. Domestic-trade heavy bunker fuel demand increased to 330,000 mt in the month, up by 20,000 mt or 6.45% from the previous month, JLC’s data shows.
On the contrary, domestic-trade light bunker fuel demand shrank as continuously rising prices somewhat deterred buyers. Domestic-trade light bunker fuel demand settled at 130,000 mt in August, descending by 10,000 mt or 7.14% month on month.
Bunker Fuel Supply
China boosts bonded bunker fuel imports from Russia in July
China sharply boosted its bonded bunker fuel imports from Russia in July, because of large discounts on Russian cargoes.
Russia became the biggest bonded bunker fuel supplier to China in the month, supplying 275,000 mt to the latter, surging by 253.02% year on year and accounting for 82.34% of China’s total imports, JLC estimated, with reference to data from the General Administration of Customs of PRC (GACC). Chinese importers placed more orders for cargoes from Russia, because of significant price advantages for Russian cargoes.
Japan replaced Singapore as the second largest supplier by shipping 46,300 mt of bonded bunker fuel to China, rising by 18.72% month on month and accounting for 13.86% of China’s total.
South Korea remained in the third place with 10,700 mt, accounting for 3.20%, despite a plunge from 70,900 mt in June 2023. Meanwhile, inflows from Singapore tumbled to 2,000 mt, rapidly down from 140,100 mt in the previous month, sending the country to the fourth place. The imports accounted for 0.60% of the total.
Despite an upsurge in imports from Russia and Singapore, China’s total bonded bunker fuel imports dropped to 334,000 mt in July, a cut of 26.33% month on month and 5.28% year on year. Underlying the decline was an increase in domestic low-sulfur fuel oil (LSFO) output and relatively high freight rates for imported cargoes.
Domestic LSFO supply increased as Chinese refiners ramped up their production to quicken the utilization of export quotas, and production basically met demand for low-sulfur bunker fuel. China’s LSFO output settled at 1.35 million mt in the month, gaining 61,000 mt or 4.73% month on month, with the daily output up by 1.35% to 43,548 mt, JLC’s data shows.
Domestic-trade heavy bunker fuel supply increases in Aug
Chinese blenders supplied about 370,000 mt of domestic-trade heavy bunker fuel in August, an increase of 10,000 mt or 2.78% from a month earlier, JLC’s data shows. Blenders bought more low-sulfur residual oil as blendstock amid lower prices, and they continued to raise their bunker fuel output when downstream buyers increased purchases with a bullish attitude.
At the same time, domestic-trade marine gas oil (MGO) supply stabilized at 170,000 mt. Light bunker fuel supply was still relatively abundant amid good coking margins.
Bunker Prices, Profits
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JLC China Bunker Fuel Market Monthly Report is published by JLC Network Technology Co., Ltd every month on China bunker market, demand, supply, margin, freight index, forecast and so on. The report provides full-scale & concise insight into China bunker oil market.
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Related: JLC China Bunker Market Monthly Report (July 2023)
Related: JLC China Bunker Market Monthly Report (June 2023)
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Related: JLC China Bunker Market Monthly Report (November 2022)
Related: JLC China Bunker Market Monthly Report (October 2022)
Related: JLC China Bunker Market Monthly Report (September 2022)
Related: JLC China Bunker Market Monthly Report (August 2022)
Related: JLC China Bunker Market Monthly Report (July 2022)
Related: JLC China Bunker Market Monthly Report (June 2022)
Related: JLC China Bunker Market Monthly Report (May 2022)
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Related: JLC China Bunker Market Monthly Report (March 2022)
Related: JLC China Bunker Market Monthly Report (February 2022)
Related: JLC China Bunker Market Monthly Report (January 2022)
Note: China-based commodity market information provider JLC Technology has been providing Singapore bunkering publication Manifold Times China bunker volume data since 2020. Data from that period is available here.
Photo credit: JLC Network Technology
Published: 13 September, 2023
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