EMEA News
Double Digit Bunker Prices in the Biggest Bunker Ports Still on the Cards for 2016
Despite the recent uptick in bunker prices on the back of a series of recent gains for crude futures, bunker prices across some of the world's biggest bunkering ports could still fall to double digit levels, the current thinking from some key analysts suggests.
Having fallen to $27.88/bbl on January 20, 2016, the equivalent of $209.94 per metric tonne (pmt), Brent has been steadily rising to end Friday at $34.74/bbl.
Oil's decline had pushed IFO380 prices in Rotterdam down as low as $109 pmt, but the key grade had risen to $150.50 pmt on Friday, according to Ship & Bunker data.
Despite mixed messages from Russia about whether it will engage Saudi Arabia and the Organization of the Petroleum Exporting Countries (OPEC) in talks about curbing oil production, one analyst laments the oil price uptick the rumours have caused, and thinks oil will drop to $18/bbl.
John Kilduff, founding partner of Again Capital, told CNBC that "This whole story line about there being a coordinated production cut plan is just rubbish."
"We're going to get that low." he added, regarding his view that oil will fall to $18/bbl.
IFO380 / Brent Relationship
Since November last year IFO380 in both Houston and Rotterdam has struggled to reach a price level that is over 60 percent of the Brent pmt price, with a number of weeks spent closer to the 50 percent mark.
Ship & Bunker data shows Friday's price for the key grade was $150.50 pmt and $145.50 pmt in Rotterdam and Houston respectively.
This was 57.5 percent and 55.6 percent of Friday's Brent price ($34.74/bbl being $261.59 pmt at 7.53 barrels pmt).
At this level, oil falling to $18/bbl ($135.54 pmt) would put the port's IFO380 prices at around $75 to $78 pmt.
Should Brent fall to $18/bbl, IFO380 prices would have to be over 73 percent of the crude price to stay above $100 pmt, but both Rotterdam and Houston have not seen the ratio that high since early 2015.
IFO380 bunker prices in Singapore, Gibraltar, and Fujairah have been priced around 60 to 65 percent of Brent over the last two months, meaning $18/bbl oil would also mean sub $100 pmt bunkers in these ports - should that relationship with Brent be maintained.
IFO380 at several Russian ports, such as St Petersburg, fell under the $100 pmt level in mid-December.
People Can't Read
While experts disagree about how low prices can drop, many of them agree with Kildfuff about the prospect of Russia and Saudi Arabia colluding to reduce output, as was widely reported last week.
Mikhail Leontyev, spokesman for Russia's largest oil company, Rosneft, told The Financial Times that "Anything is possible. … [But] nothing new has happened.
"This frenzy is idiotic: it stems from the fact that people can't read."
Oil prices climbed as much as 8 percent on January 28 when Alexander Novak, Russia's energy minister, said his country might discuss production cuts with OPEC in February.
Then, on January 29, Arkady Dvorkovich, Russia's deputy prime minister, said his country would not intervene to balance the market.
A few hours later, Russia's foreign ministry announced that veteran minister Sergei Lavrov would visit the United Arab Emirates and Oman to discuss oil markets.
Oil prices rose again that day, rebounding over 25 percent from recent 12-year lows.
Kilduff said, "The market has rewarded these statements about the possibility of a deal, even though I think it's ridiculous.
"This is a rally on false hopes, unfortunately."
He added that consumer benefits from cheap oil and gasoline outweigh the negative effects amongst oil producing companies: "This is nothing but stimulative and positive for the economy."
The saga of Russia saying it will address the matter of the global oil glut only to issue contradictory statements began in November, when Novak and Igor Sechin, head of Rosneft, both said a meeting was possible in mid-December between OPEC and non-OPEC producers.
