Bunker Price Volatility, Uncertainly Set to Continue

Some analysts think an oil price recovery is crucial, while others say new lows are required to end the oil glut.

Volatility and uncertainly for bunker prices looks set to continue, with more analysts Tuesday providing further conflicting views on what - and why - the direction of the oil markets will be.

Highlighting current volatility, Ship & Bunker data shows that in Singapore, for example, the average price of IFO380 Tuesday had dropped to $180 per metric tonne (pmt), just $1.50 lower than the $181.50 pmt is was three months ago, but prices have fluctuated between $187.50 and $147.00 pmt in that time - a spread of $40.50 with several peaks and troughs throughout.

That spread has been $30.50 pmt over the last two weeks alone.

Proving that consensus is as elusive as ever in predicting what will happen to the global oil market in the near future, Sanford C Bernstein & Co. believes prices will return to $70 per barrel in the next year – but Vandana Hari, Asia editorial director of Platts, thinks it is "quite likely that oil will continue testing new lows."

The two factions also have differing opinions about the effect of their predicted oil prices: Bob Brackett, senior research analyst at Sanford C Bernstein, is quoted in a report as saying that "The price of oil has to rise to balance the market in the medium run, and the medium run might be sooner than people think."

The report also stated that the industry simply can't stay profitable at current price levels.

By contrast, Hari, speaking to CNBC-TV18, predicted that oil prices will drop again, and "more importantly whatever level it goes down to, it needs to sustain at that level to really effectively cut out the excess, the marginal oil, the uneconomical barrel that is being put into the market for a long-term stability."

Hari would not guess what the bottom will be other than to warn market players to "be braced" for testing new lows and that uncertainties ranging from Iran threatening to increase its output to a 1.2 million barrel per day demand growth in 2016 need to unfold before a true forecast of the market can be determined.

Hari's comments contradict the International Energy Agency, which points to output outside the Organization of the Petroleum Exporting Countries going into its biggest slump in 24 years as evidence that "prices might have bottomed out."

Meanwhile, Jeffrey Currie, head of commodities research at Goldman Sachs Group Inc., says "An early rally in prices before a deficit materializes would prove self-defeating"; echoing Hari, he thinks prices need to stay low enough to starve producers of capital, otherwise output losses necessary to shrink the global supply surplus won't happen.

Last month, Currie remarked that "I wouldn't be surprised if this market goes into the teens" and that this wouldn't necessary be a doomsday scenario.