International Oil price (Brent) (‘22/3M)

International oil prices, triggered by the Russia-Ukraine war, have taken a smooth after a sharp rise (February and March). The recent absence of additional sanctions on Russian crude oil from Western countries is interpreted as limiting the rise in oil prices. We will also look at the sharp rise in international oil prices and the shipping market affected by them.

 

 

1. Crude oil supply and demand status and Brent oil price

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1-1. Crude Oil Supply and Demand

- On March 21st, the Hong Kong authorities announced plans to ease quarantine measures, such as easing social distancing guidelines and shortening the quarantine period for Hong Kong residents when entering from overseas.

- On the other hand, as the spread of corona infection in China continues and strong quarantine measures such as containment measures are adhered to, concerns about Asian oil demand have been raised in the market. Bloomberg News reported that there is a movement to reduce refining processing in the independent oil refining industry in Shandong, China.

- In a survey conducted by the Dallas Federal Reserve on CEOs of 132 oil and gas companies, about 60% cited investor capital regulation as a major factor preventing them from actively increasing production, and also expressed difficulties in increasing production due to policy uncertainty and supply chain bottlenecks.

Looking at the demand/supply (%), it exceeded 100 by 4Q 2021, indicating that there was more demand than supply. Due to these factors, Brent oil also rose sharply after the supply/demand ratio recorded 90.5% in 2Q 2020 due to the corona effect. Looking at the 1Q of 2022, the supply/demand ratio is below 100 (99.7%), but it is still close to 100. However, it can be seen that the recent rapid rise in oil prices is more a geopolitical issue due to the Russia-Ukraine war than supply/demand.

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1-2.        geopolitical issues

 - It is known that the EU is discussing additional sanctions, including a ban on Russian oil imports, and a Russian Kremlin spokesperson warned that the global market, especially Europe, would be most affected if the EU implements the embargo.

 · However, due to the EU's high dependence on Russian energy within the EU, disagreements over direct sanctions on the Russian energy sector persist, and some Asian countries, including India, are introducing Russian oil.

 - On March 19-20, Yemen's Houthi rebels attacked Saudi refining facilities, which temporarily halted operations.

 · After the attack, Saudi Arabia stated that it could not be held responsible for the stability of the oil market, and the market evaluated it as an expression of the conflict between Saudi Arabia and the United States over the issue of the Iranian nuclear deal with the Houthi rebels.

- The Iranian foreign minister, who said on the 23rd of March that the Iran nuclear deal was closer than ever, said on the 24th that if the US shows a pragmatic attitude in the nuclear negotiations, a nuclear agreement could be reached within a short period of time.

 

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1-3.        Finance

 - The US manufacturing purchasing managers' index (PMI) for March stood at 58.5, beating the previous month's (57.3) and market expectations (56.3).

  - A number of Fed officials, including US Federal Reserve Chairman Powell, have expressed their support for a 50bp increase at the next FOMC meeting if necessary.

  - While the US hints at the possibility of a rapid rate hike due to inflationary pressures, concerns over an economic slowdown have been raised in the market as the gap between the long-term and short-term US Treasury yields is narrowing.

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 2.     Bunker Oil Price

 

Standard: HSFO (Singapore, 380cst 3.5% Sulfur price) / VLSFO (Singapore, 0.5% Sulfur price)

Ship fuel oil (bunkers) prices are on the rise due to the Ukraine crisis. It once crossed $1,000. According to the industry, the price of low sulfur heavy fuel oil (VLSFO) at Singapore Port once peaked at $1015 per ton and then turned downward. Singapore port VLSFO prices soared 60% in one month.

 

High sulfur oil prices also rose sharply. On the 7th and 8th, all major ports jumped above the $700 range and then fell back to the $600 range. The average high sulfur oil price in February was $734.25. The price difference with low-sulfur oil is around $200.

 

As countries around the world, including the United States and Europe, imposed economic sanctions on Russia, which invaded Ukraine, increased energy supply uncertainty is fueling the rise in crude oil prices. After the Ukraine crisis, the prices of Brant oil and Dubai oil from the North Sea soared to around $130 per barrel at one time.

 

The sudden surge in oil prices is expected to increase the cost burden on shipping companies. National shipping companies operating offshore routes raised the low sulfur fuel surcharge (LSS) all at once to reflect the rise in oil prices. It seems highly likely that this cost burden will eventually be passed on to the final consumer (shipper).

 

 

Thanks.