One more week ended with a downward decline in Brent crude oil price and bunkering costs. Brent crude spot price has fallen to $90.98/barrel from more than $120/barrel during March-April, while crude oil for July delivery fell $2.23 to $81.80 a barrel on the New York Mercantile Exchange last Wednesday, the lowest settlement since October, implying that the downward oil price sentiment will persist in the coming days and benefitting  tanker operators through lower bunkering costs. In addition, Brent oil for August declined by 3.2% to $92.69/barrel on the London based ICE Futures Europe Exchange, the lowest sentiment since December 17th, 2010.
The downward direction of oil prices is being supported by the recent announcement from the Energy Department reporting that US crude inventories climbed to the highest level in 22 years. The department said that US supplies rose by 2.86 million barrels to 387.3 million last week, the highest level since 1990. Furthermore, US crude production climbed 117,000 barrels a day to 6.35 million for the week ending June 15th, which is the highest levels since February 1999, while crude imports increased 328,000 barrels a day to 9,45 million last week, the highest level since March. The increased US production with a record high import activity may have a direct impact on US oil demand that will drive the Brent crude price sentiment at even lower levels.
IFO 380 bunker fuel in Singapore and Fujairah fell again below $600/barrel, posing a 7% and 8% week-on-week decline respectively, while in Houston and Rotterdam are now at less than $550/barrel, down by 6% and 8% on a weekly basis.
IFO 180 bunker fuel is also less $600/barrel posing a 7% weekly decline in Singapore, 8% decline in Rotterdam, 6% decline in Fujairah and 4% decline in Houston, where at last week the cost was more than $600/barrel.
MDO bunker fuel oil cost is on a downward pressure in Houston and Singapore of less than $860/barrel, down by 3% and 4% respectively, while it is now less than $1,000/barrel in Fujairah, down by 3% from previous week. In Rotterdam, MGO is now at $806/barrel and at $811.50/barrel in Singapore, down by 5% week-on-week respectively.

The oil price prospects have not changed the negative outlook of crude tanker environment with OPEC viewing that ongoing challenges to world economic recovery have led to even larger uncertainties for oil demand in 2h2012. In the tanker market, dirty spot freight rates were mixed in May with average VLCC rates decreasing, while average Suezmax and Aframax rates saw gains. High tonnage availability and refinery maintenance affected rates in May. Clean spot freight rates fell in the East and rose in the West from the previous month. OPEC spot fixtures increased by 12% in May compared to the previous month. Sailings from OPEC were steady in May, while arrivals in the US increased.
According to OPEC’s latest Report of June, world oil demand growth in 2012 is expected at 0.9 mb/d, y-o-y to average 88.7 mb/d, unchanged from the previous report. The first half of this year experienced various economic developments world-wide, which placed a great amount of uncertainty on oil demand. This has been related to two main factors: the turbulence in the world economy and the volatility in oil prices. The effects of these are expected to last until the end of the year. The indicators do not point clearly towards a stabilizing of the world economy. The economies of the US, Europe and, to a certain degree China are still slowing down mildly. Hence, world oil demand in the second half of this year will face much uncertainty. US and European oil demand will contribute a large share of this uncertainty. While these two regions are squeezing oil demand, other Non-OECD regions are pushing for more oil consumption.
The second half of the year is likely to experience an even greater degree of uncertainty. The upcoming driving season in the Northern Hemisphere might be affected by retail gasoline prices and economic development, leading to a further decline in world oil demand. The shutdown of Japan’s nuclear plants is leading to more fuel and crude oil usage in the power sector. However, should Japan decide to bring back some of its nuclear power plants into service, the recent surge in the country’s oil usage could be impacted.
Slowing US economic activity has been affecting oil demand. The most important sector, transportation, is still consuming less oil than it did last year. This is attributed mostly to economic activity and high retail prices. North American oil demand projected to decrease again in 2012, but by a smaller magnitude of 0.06 mb/d. Oil consumption expected to shrink again in Europe by 0.34 mb/d in 2012, due to eeconomic turbulence in several economies.
The Chinese demand will continue to be a supportive factor on the worldwide crude demand with a positive influence on the earnings of very large crude carriers. According to Poten & Partners, the rapid growth of Chinese oil product demand, refining capacity and crude imports has been a supportive factor of crude tanker demand for years and is poised to continue this trend. Although the 3.8% average annual growth in the VLCC fleet during 2006-2011 has presented challenges to the sector, the 11.8% average annual surge in Chinese crude imports over the period and the growing contribution of Chinese crude import tonne-mile demand have supported VLCC demand. In 2011, more than one fifth of total VLCC employment was dedicated to Chinese crude imports and this proportion has doubled since 2005. The figure is impressive, but over the same period the VLCC fleet also grew by more than 25%. This trend in the Chinese share of VLCC demand should continue, as Chinese refiners lift an additional 1.1 mbpd of AG crudes, 0.4 mbpd of Latin American grades and 0.8 mbpd of WAF cargoes during 2011-16. In fact, this forecast pattern of Chinese imports would imply that VLCCs capture 83% of incremental Chinese tonne-mile demand during the period. This figure is impressive, but implies approximately 70 VLCCs worth of incremental demand from 2011 to 2016. With the current VLCC orderbook near 100 vessels, other importing regions need to add to VLCC demand to ease the imbalance between supply and demand.
The Paris based International Energy Agency keeps a positive position on the future oil demand. The Eurozone crisis may be worsening and the European refining operations may be constrained by weak margins, but the June Oil Market Report (OMR) of International Energy Agency (IEA) predicts there will be a sharp rise in crude oil demand in the coming months. According to June OMR, summer power generation demand and potential continued non-OECD stockpiling could boost crude demand further.

Source: Maria Bertzeletou, Bunker Ports News Worldwide