Bunkering prices show signs of firmness with the brent crude spot price rising above $95/barrel from $90,98/barrel in the week ending June 22nd. However, IFO 380 prices are still below $600/barrel with IFO 180 surpassing $600/barrel in Fujairah and Houston from the opening of July. Under the current weak freight environment for tanker operators, the brent crude spot price and bunkering expenses are still on a downward trend for all trend for all the grades of bunkering in major ports from the highs of 2011, when IFO 380 prices were more than $700/barrel in Fujairah.
“Crude oil is dropping so tanker owners are not buying as they want to see how much it can fall, so basically delaying demand”, according to a Fujairah based oil trader. Oil is on track to post its biggest quarterly fall since the financial crisis in 2008 as the euro zone crisis and weak growth in the United States weigh on the global market, while ample supply from OPEC has added to the downward pressure on prices. “This puts pressure on premiums as sellers want to sell but there are not many buyers around in Fujairah,” Fujairah based oil trader said. Another trader said tanker owners who normally lift 2,000 tonnes of bunker fuel were buying only a quarter of that in the hope of buying more at a lower price later. But traders say underlying demand is strong and expect buyers to return to the market soon to snap up cheaper fuel they still need. “These very low prices should eventually help the market strengthen actually because the demand has not disappeared,” a Gulf-based fuel oil trader said.
The Bank of America Merrill Lynch forecasts a price of $106/bbl for Brent crude and $97/bbl for US WTI crude oil in 2H 2012, while contraction in OECD Europe demand for crude oil on account of Europe debt crisis and excess supplies of crude oil, create downside risks on the oil demand. BofAML also said that the risk of $60/bbl for Brent crude won’t go away soon due to the latest developments in Eurozone debt crisis and its impact on emerging economies. “Our oil price forecasts for 2H2012 incorporate a number of assumptions including (1) a more aggressive monetary and fiscal stance in emerging economies, (2) another round of quantitative easing by the Federal Reserve in September, and (3) reduced supplies from the Iranian oil embargo kicking in on July 1. But most crucially, without some degree of banking integration and ECB easing, the downside risks to oil prices in 2H2012 will grow,” BofAML said in a note.
Barclays Research said that China’s oil demand and OPEC production are lying behind the overall weakness. Chinese oil demand growth has averaged in the second quarter just 0.7%, the slowest growth since the first quarter of 2009, while OPEC production has remained above 31 million barrels/day for seven straight months, for only the second time since the 12 months starting from October 2007. In addition, Saudi Arabian oil production has stayed above 9,5 million barrels/day and close to 12 million barrels/day for 12 straight months for the first time ever. Under the current market fundamentals, weak Chinese oil demand, increase of US oil production, high OPEC production and slow economic growth from the financial crisis that results in overall lower oil demand, oil prices are expected to keep falling through 2013, trimming the profits of the world’s biggest petroleum companies.
“The biggest challenge facing major oil-producing countries is maintaining oil prices at $100 a barrel regardless of any changes the markets may face in times ahead,” said Walid Khadduri, former information director at the 10-nation Organisation of Arab Petroleum Exporting Countries (Oapec). "The pressing question now is the following: how do major oil producing countries deal with the decline in oil prices? Before answering this question, we must first note that the earlier rise in prices to the level of $128 did not realistically reflect market fundamentals of supply and demand,” he said in an article published by the Abu Dhabi-based Emirates Centre for Strategic Studies and Research. He said the main reason behind such high price levels was the fear of supply shortages caused by Western sanctions on Iran’s crude exports, the state of political instability in some other oil producing countries and rising demand for crude oil in emerging markets. “It is worth mentioning that a fair price at the current stage for both producers and consumers is about $100 a barrel. Thus, it is expected that oil-producing countries will target this price level and maintain it even though officials of the International Energy Agency believe that this price could hurt global economic recovery and seek a lower price range for oil.” “Opec is aware that in times of crises, as was evident during the Asian economic crisis in 1998 and during the global economic crisis of 2008 – it is very difficult to initially arrest falling oil prices because in such times oil-producing countries generally increase their production to compensate for revenue losses resulting from lower prices,” he added. “He said this brings down prices further. For example, prices dropped from their record highs of above $140 a barrel to $35 per barrel within a few months of 2008….this underscores the need for greater cooperation among Opec members during times of crises to reduce the possibilities of a sharp fall in prices which could harm the interests of every side.”

Maria Bertzeletou, Bunker Ports News Worldwide