DECEMBER 2017

MABUX Bunker Review Information and analytical product on trends of the global bunkering market and their influence on the development of the Russian bunkering market, including pricing information, the forecast part and the estimate of regional bunkering markets turnover using a proprietary index system. The publication is intended for foreign and Russian bunker companies, operating or intending to start operation on the Russian bunker market, large oil companies, ship operators and ship owners, bunker fuel producers and other players of the bunker market. CONTENTS 1. The global fuel market in December 2017 ………………………………….………….................... 2 2. MABUX World and Regional Bunker Indices in December……………………………………... 6 3. MABUX price indices on the bunker market in foreign and Russian sea ports …….…....... 9 4. Indices of mean bunker prices in some Russian ports as compared to the dynamics

of regional hubs of the world ………………………………………..………....……….................. 11 5. Price indices forecast for the world’s largest hubs for the next 6 months …………………. 14 6. Price margin for heavy bunker fuel in base ports ………………………………....................... 16 7. Regional bunker market turnover ……………………………………………….……………......... 18

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BUNKER REVIEW

DECEMBER 2017 1. The Global Fuel Market in December 2017 World Oil indexes are set to close out 2017 year up more than 11 percent, hitting their highest level since 2015. In the first half of the year, the OPEC cuts appeared to have little effect, and oil prices changed mostly irregular. But the cuts started to take a larger volume out of inventories in the third quarter and the price rally ensued. Other notable developments included the return of geopolitics as a market mover, with outages in Libya, Iraq, the North Sea and Canada all contributing to higher indexes. U.S. shale also came roaring back in 2017, and those production gains are expected to continue into 2018. World fuel indexes demonstrated rather contradictory evolutions in the last month of 2017. After sinking for much in the first half of December, fuel prices turned into the phase of upward movement. Market attributed the rise to tensions in the Middle East after the Trump administration announced the U.S. would move its embassy in Israel to Jerusalem, a move that was met with widespread protest in the region. Meanwhile, data from China showed strong crude import data for November, and the shutdown of the Forties North Sea pipeline knocked out significant supply from a market.

Forecasts in December 2017

A number of December forecasts added to speculative component in global fuel prices. Goldman Sachs reported, that OPEC may end up with oil production cuts sooner than expected due to a surge in global demand. According to the forecast, the market may well rebalance by the middle of 2018. In that case there will be no need to continue with production cuts through the end of the year. At the same time, the bank left their forecast for Brent crude unchanged at $62 a barrel.

Barclay argues that oil prices are due for a correction, citing several reasons that point to a coming downturn. Investors are overstretched with bullish bets on oil futures, exposing the market to a snap back in the other direction. Also, China’s economy is expected to slow in 2018, raising the risk of weaker-than-expected demand. Plus, oil supply is rising in the U.S., Brazil and Canada, among other countries. Inventories could start to build again in 2018, slowing the rate of rebalancing. Barclays notes that there are plenty of reasons why their forecast could be wrong, but they predict lower prices in the near-term. CNBC also considers that there is more risk to oil on the downside because of rising U.S. production at a time when speculative moves in the futures market have become a little too bullish. OPEC+ determination to keep the cuts in place comes at the same time that U.S. shale seems to be accelerating in response to higher oil prices. The difficulty is that the estimates for how much supply the U.S. will add next year differ by a wide margin. The IEA predicts non-OPEC supply growth by about 1.4 million barrels per day (bpd) in 2018 (that would overwhelm demand). OPEC is more hopeful: the cartel only predicts non-OPEC supply growth of less than 900,000 bpd next year. So the problem is that it is too difficult to forecast with any accuracy what to expect from shale drillers over the next year. MABUX Consulting Company +46 42 140430 Email: [email protected] Web: www.mabux.com

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BUNKER REVIEW

Forecasts in December 2017

DECEMBER 2017

According to American EIA forecast published on Dec. 18, shale production in the U.S. may rise to a record in January, as higher prices encourage companies to pump more. It may increase by 94,000 barrels per day to 6.41 million bpd. Meantime, researchers have discovered a flaw in the U.S. Energy Information Agency (EIA) official forecast, which might mean that the Agency is vastly overstating the potential growth of oil and gas production. In particular, the EIA has assumed technology has been behind much of the growth of shale, but the researchers said recent growth is more due to the fact that low prices have forced drillers to focus only on the most productive rigs. The conclusion is that total U.S. oil and natural gas production could undershoot EIA forecasts by 10 percent by 2020, a disparity that widens in subsequent years.

The main trends and The main December’s driver on the global fuel market was OPEC and non-OPEC producers’ decision to extend oil output cuts until the end of 2018. OPEC also decided to cap the combined drivers of the Global output of Nigeria and Libya at 2017 levels below 2.8 million bpd. Both countries have been Fuel Market in exempt from cuts due to unrest and lower-than-normal production. There was also announced, December 2017

that all parties would review the agreement at the next OPEC meeting in June. That seems to be a formality since the meetings are always a time and place at which OPEC assesses the situations on the oil market. However, if the market tightens too much and prices rise significantly, Russia could push to end the agreement early, as it sees more advantages in lower oil prices. First, the lower the oil prices, the less motivated U.S. shale producers would be to expand their own production. Like OPEC, Russia sees U.S. shale boomers as the main threat to its positions in the global oil market. Besides, the Russian economy benefits from a weaker rouble, which could be ensured by lower oil prices. Meantime, Russia is starting to look at its shale potential, and large reserves are thought to be located in the Bazhenov shale in Western Siberia. In fact, it is thought to be the largest shale formation in the world. Up until now, Russia has relied on conventional sources, but Russian companies are starting to move into shale. Although output from Russia’s shale is not expected before the mid-2020s, it could be crucial to offsetting declines from mature oil fields. Saudi Arabia in turn is going to cut its crude oil exports to Asia by more than 100,000 bpd in January compared to December, while keeping its shipments to Europe and the U.S. at the December levels. Saudi Arabia's overall global crude oil shipments will be kept at 6.9 million bpd in January. For December, the Saudis had cut total crude oil exports by 120,000 bpd from just above 7 million bpd in November, cutting shipments to all regions, including a 10-percent reduction of oil exports to the U.S.

Unrests swept across multiple cities in Iran. Protestors, mainly young people, criticized the government for poor economic conditions. The demonstrations pushed crude and fuel prices up a bit. For the third time in roughly seven weeks, Houthi rebels have fired a ballistic missile into Saudi Arabia on Dec.19. The missile launched by the Yemeni rebels was reportedly shot down by MABUX Consulting Company +46 42 140430 Email: [email protected] Web: www.mabux.com

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BUNKER REVIEW The main trends and drivers of the World Bunker Market in December 2017.

DECEMBER 2017 Saudi air defenses before striking the al-Yamama royal palace. Houthi-controlled television has claimed that the missile targeted a meeting of Saudi leaders in a palace. This fact supported fuel indexes momentarily. On Dec.26 an explosion on the Zaggut to Es Sider oil pipeline in eastern Libya occurred. The pipeline transports crude oil to Libya’s largest oil export terminal, Es Sider. The incident provided a lift to fuel prices, and it also highlights the risk to supply from some unstable countries. Libya’s total crude oil production dipped to 950,000 bpd on Dec.27, down from 1.08 million bpd as of December 18. At the moment repairs have been finished, and production is restarting gradually. Although Libya has agreed to cap its 2018 oil production at the 2017 levels as part of its contribution to the OPEC production cut pact, the country has been struggling to raise its production significantly above 1 million bpd—the level it reached on summer 2017, for the first time since 2013. A union for Nigerian oil workers declared a strike on Dec.18 on demands for improved working conditions went unaddressed, raising questions about supply outages in the African nation. However, the strike was called off the same day as talks seemingly started to get somewhere, although details remain unclear. It reduced concerns of a major supply disruption. At the same time, the issue is important for the global fuel market - an outage at a major oil producing country could lead to sharply higher prices. The factor of risk for the global fuel market is also Venezuela. After defaulting on debt, Venezuela's crisis continues to unfold, threatening to worsen the state-owned oil company PDVSA's production. In 2017 daily crude production in Venezuela is set to fall by at least 250,000 barrels, and in 2018 the pace of decline may accelerate, reaching 300,000 bpd. The monthly rate of decline in 2017 was 20,000 bpd. As `a result, oil production fell to the lowest in almost three decades, and it looks like the trend will continue as the recession deepens. President Trump faces a series of deadlines in January that offer him the opportunity to tear up the 2015 nuclear deal with Iran. Every three months the President has to recertify the agreement. In October Trump said that the agreement would be terminated if the President will not be able to reach a solution working with Congress and U.S. Trump could restore sanctions on Iran, which could lead to an escalation of conflict. Britain's Forties oil pipeline, the country's largest at a capacity of 450,000 barrels per day (bpd), returned to operation and the restoration of output from North Sea oilfields removed one of the recent supporting drivers from the global fuel market. Forties is the biggest of the five North Sea crude streams underpinning benchmark Brent, for oil trading in Europe, the Middle East, Africa and Asia.

U.S. crude oil production continues to rise placing further pressure on prices. The daily rate reached 9.789 million barrels in the end of December, from 8.95 million bpd at the start of 2017. This means U.S. output is fast approaching that of top producers Saudi Arabia and Russia, which are pumping 10 million bpd and 11 million bpd respectively. Moreover, all forecasts point to a consistent further increase in U.S. production, which may well undermine OPEC and Russia's production cut efforts. MABUX Consulting Company +46 42 140430 Email: [email protected] Web: www.mabux.com

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BUNKER REVIEW

The main trends and drivers of the World Bunker Market in December 2017.

DECEMBER 2017

Moreover, Asian refiners are after U.S. crude oil as WTI continues to trade at a comfortable discount to Brent. Сrude oil shipments from the Gulf of Mexico and the Caribbean to China, Japan, South Korea, Singapore, and Taiwan jumped from about 500,000 bpd at the beginning of 2017 to over 1.2 million bpd, and will likely continue to rise as production, especially in the shale patch, is increasing. This will eventually have a negative effect on prices. Tension over North Korea has a potential to support fuel prices in near term outlook . The latest disturbance comes after news that Russian oil tankers helped send oil to North Korea, which would be a violation of UN sanctions. The U.S. has also accused China of violating UN sanctions by shipping crude oil to the isolated North Korea regime. The pace of China's oil imports growth is one of the most closely watched indicators on global fuel market. China is importing increasing volumes of oil not only because of demand growth, but also because its domestic oil production is declining as large ageing fields mature and as companies cut production from higher-cost fields amid the lower-for-longer oil prices. Therefore, Chinese dependence on crude oil imports is continuously rising and is set to further grow in the foreseeable future. As a result, China's oil import reliance exceeded 65.6 percent in 2016 and is forecast to rise to 80 percent by 2030. By 2020, Chinese consumption of crude oil is expected at 12 million bpd. U.S. and China are working on a draft resolution on sanctions against North Korea, that they could present to the UN Security Council soon. This time the sanctions will target oil product as a way of forcing Pyongyang to stop working on its nuclear missile program. The sanction talks came in response to the latest missile test from Pyongyang, which took place at the end of November and in which the missile flew for about 1000 km before falling into the sea. The talks were initiated by U.S., but it remains unclear for now if China will agree to slap more sanctions on North Korea. In general, the market is still rather optimistic seeing OPEC+ supply cuts results. Meantime, the focus is gradually shifting again to the ratio of the fundamentals: supply and demand. The main point now is that the OPEC's production cut extension, and as a result rising oil and fuel prices, may push U.S. output up. Both: OPEC and Russia don't see global inventories falling back into the five-year average until the second half of 2018 - seasonally lower demand during winter months suggests that the destocking process will take a pause in the first quarter. In that case, real progress will not begin until probably the second quarter of 2018. We expect bunker fuel prices still maintain the potential for growth in January.

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BUNKER REVIEW

DECEMBER 2017

2. MABUX World and Regional Bunker Indices in December 2017 The values of the MABUX World Bunker Index (WBI), calculated based on the current prices MABUX World Bunker for major bunker fuel types in the pool of the leading world ports, kept the upward trend within the Index in December period from December 01 to December 29, but during the month there were quite sharp irregular 2017 fluctuations. By the end of the month the growth rates of all major types of bunker fuel increased significantly compared to November. 380 HSFO - up from 355.54 to 367.93 USD/MT (+12.29 compared to +4.00 in November) 180 HSFO - up from 397.29 to 408.36 USD/MT (+11.07 compared to +7.50 in November) MGO - up from 585.79 to 616.79 USD/MT (+31.00 compared to +18.64 in November) The difference between December’s peak values for heavy types of bunker fuel has in fact remained at November’s level and amounted to: for 380 HSFO — 24 USD (compared to 22 USD in November), for 180 HSFO — 23 USD (compared to 24 USD in November). For MGO the difference of peak values has increased up to 40 USD (compared to 25 USD in November), which reflects the general upward trend in the global bunker marker, rather than the volatility in fuel prices. Meantime, the situation on the market remained stable with a distinct uptrend. The absolute peak values (MIN — MAX) of the World Index in December amounted to: 380 HSFO – 345,86 USD/MT (07.12) - 369,79 USD/MT (28.12) 180 HSFO – 387,21 USD/MT (07.12) - 410,21 USD/MT (28.12) MGO – 576,57 USD/MT (07.12) – 616.79,43 USD/MT (29.12)

380 HSFO

180 HSFO

420 410 400 390 380 370 360

350 340

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2017-12-29

2017-12-28

2017-12-27

2017-12-26

2017-12-25

2017-12-22

2017-12-21

2017-12-20

2017-12-19

2017-12-18

2017-12-15

2017-12-14

2017-12-13

2017-12-12

2017-12-11

2017-12-08

2017-12-07

2017-12-06

2017-12-05

2017-12-04

2017-12-01

2017-11-30

330

2017-11-29

Pic. 1. MABUX World Bunker index from 29.11.2017 to 29.12.2017 380 HSFO/180 HSFO

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BUNKER REVIEW Pic.2. MABUX World Bunker Index from 29.11.2017 to 29.12.2017 MGO

NOVEMBER 2017 MGO 620 610 600 590 580

Table 1. MABUX Regional Bunker Indices (RBI) in December 2017.

Region Northern Europe

Southern Europe

Northern America

Central America

Southern America

Asia/Oceania

Africa/Middle East

2017-12-29

2017-12-28

2017-12-27

2017-12-26

2017-12-25

2017-12-22

2017-12-21

2017-12-20

2017-12-19

2017-12-18

2017-12-15

2017-12-14

2017-12-13

2017-12-12

2017-12-11

2017-12-08

2017-12-07

2017-12-06

2017-12-05

2017-12-04

2017-12-01

2017-11-30

2017-11-29

570

Fuel

November

December

Difference by November

380cst 180cst MGO 380cst 180cst MGO 380cst 180cst MGO 380cst 180cst MGO 380cst 180cst MGO 380cst 180cst MGO 380cst 180cst MGO

348 376 548 376 403 588 370 420 618 381 422 680 395 432 735 381 417 564 400 448 636

346 375 560 369 399 601 371 420 626 376 439 651 393 431 725 372 388 570 398 442 646

-2 -1 12 -7 -4 13 1 0 8 -5 17 -29 -2 -1 -10 -9 -29 6 -2 -6 10

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BUNKER REVIEW MABUX Regional bunker indices (RBI) in December 2017.

DECEMBER 2017 Regional Bunker Indices (RBI) at month-end December showed some downward correction compared to a distinct upward trend in November. Prices for heavy types of bunker fuel in virtually all regions have not changed significantly (with the exception of Asia/Oceania, where quotes demonstrated an average decrease of 8-23 USD compared to November). However, MGO prices continued to rise by an average of 6-12 USD in all regions except Central America (a decrease of 29 USD). It should be noted that a general trend in the global bunker market in December remained unchanged: upward evolution. Contradictory figures of average regional bunker indexes were provoked by sharp fluctuations of quotations down, which took place on December 06-07.

Bunker Market Outlook, January 2018.

The end of 2017 was rather quite in the world bunker market. The supportive factors formed at the end of the year: the OPEC+ decision to extend oil cut agreement, the outages in oil supplies through the Forties pipeline, the geopolitical tension in the Middle East and the Korean Peninsula, were offset to some extent by the increase of production in non-OPEC countries, primarily in the United States. We expect bunker fuel prices have a chance to continue a moderate upward movement in near-term outlook.

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BUNKER REVIEW

DECEMBER 2017

3. MABUX Price Indices on the bunker market in foreign and Russian seaports. Table 2. MABUX mean bunker indices in the world hubs. 380 HSFO, 180 Genoa HSFO, $ per tonne

380 HSFO

Name

Gibraltar

Nov-17

Dec-17

Diff by Nov 2017

Nov-17

Dec-17

Diff by Nov 2017

377

369

-8

427

424

-3

375

364

-11

397

389

-8

0

388

386

-2

Durban

Table 3. MABUX mean bunker indices in the world hubs. MGO, $ per tonne

180 HSFO

New York

375

370

-5

408

398

-10

Panama

359

355

-4

406

411

5

Busan

392

402

10

414

420

6

Rio-de-Janeiro

382

377

-5

414

409

-5

Rotterdam

352

350

-2

370

368

-2

Singapore

372

373

1

396

401

5

Istanbul

379

376

-3

396

391

-5

Fujairah

371

367

-4

436

427

-9

Houston

345

345

0

422

414

-8

MGO

Name Nov-17

Dec-17

Diff by Nov 2017

Genoa

609

623

14

Gibraltar

583

594

11

Durban

626

610

-16

New York

575

591

16

Panama

588

589

1

Busan

577

595

18

Rio-de-Janeiro

716

687

-29

Rotterdam

534

551

17

Singapore

546

563

17

Istanbul

587

598

11

Fujairah

608

612

4

Houston

567

578

11

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BUNKER REVIEW Table 4. MABUX mean bunker indices in Russian seaports. 380 HSFO, 180 HSFO, $ per tonne

Table 5. MABUX mean bunker indices in Russian seaports. MGO, $ per tonne

DECEMBER 2017 380 HSFO

Name

Azov Arkhangelsk Vostochniy Vysotsk Port of Kavkaz Kaliningrad Kozmino Kerch Murmansk Nakhodka Novorossiysk Primorsk St. Petersburg Taman Tuapse Ust-Luga

180 HSFO

Nov-17

Dec-17

Diff by Nov 2017

279 352 329 350 301 350 329 379 342 329 359 350 319 301 369 319

279 356 334 345 301 345 333 376 346 334 359 345 314 301 369 314

0 4 5 -5 0 -5 4 -3 4 5 0 -5 -5 0 0 -5

Nov-17

Dec-17

Diff by Nov 2017

309 0 335 0 377 0 335 396 362 335 389 0 354 377 394 0

306 0 344 0 389 0 343 392 366 344 386 0 349 389 391 0

-3 0 9 0 12 0 8 -4 4 9 -3 0 -5 12 -3 0

MGO

Name Nov-17

Dec-17

Diff by Nov 2017

Azov

497

506

9

Arkhangelsk

556

580

24

Vostochniy

500 535

542 550

42 15

576 535

587 550

11 15

500 642

540 653

40 11

546 500

575 541

29 41

587 535

597 550

10 15

536 576

551 587

15 11

592 536

602 551

10 15

Vysotsk Port of Kavkaz Kaliningrad Kozmino Kerch Murmansk Nakhodka Novorossiysk Primorsk St. Petersburg Taman Tuapse Ust-Luga MABUX Consulting Company +46 42 140430 Email: [email protected] Web: www.mabux.com

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BUNKER REVIEW

DECEMBER 2017

4. Indices of mean bunker prices in some Russia ports as compared to the dynamics of regional hubs of the world. The difference in fuel prices between the Russian and foreign markets in December didn’t undergo significant changes. At the same time directional growth of prices for bunker fuel continued. At the same time, the growth of prices for bunker fuel in all regions slowed down a bit, while there was noted a slight correction downward for Heavy Fuel prices.

Pic. 3. St. Petersburg Rotterdam, 380/180 HSFO

St.Petersburg IFO 380 Rotterdam IFO 380

St.Petersburg IFO 180 Rotterdam IFO 180

370 350

330 310 290 270

323 305

296

332 320 302 273

282 265

280

250

300

263

255

310 292

314 301

274

283 270

264

260

230

Pic. 4. St. Petersburg Rotterdam, MGO

293 275 262

465

474

460

465

296 280

446

459

285

352

368 350 349

320

314

316

290

295

512

514

501

505

319

314

268

252

RotterdamMGO

474 461

315

285 270

St.Petersburg MGO 570 550 530 510 490 470 450 430 410 390

303

338

370 354

470

451

458

407

551

534 551

459

419 431

536

434

The difference of prices for IFO 380 and IFO 180 between Rotterdam and Saint Petersburg has slightly increased by average 3 USD. IFO 380 in the Russian port was on average 36 USD cheaper compared to Rotterdam (against 33 USD in November), and IFO 180 in Saint Petersburg was 19 USD cheaper compared to Rotterdam (against 16 USD in November). At the same time the difference between minimum and maximum value of monthly prices for IFO 380 and IFO 180 (one of the indicators of volatility of the market) in Saint Petersburg in fact has not MABUX Consulting Company +46 42 140430 Email: [email protected] Web: www.mabux.com

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BUNKER REVIEW St. PetersburgRotterdam

DECEMBER 2017 changed, while in Rotterdam it rose by average 14-15 USD in December which indicates a growth of volatility in the Dutch hub. The minimum/maximum (USD/MT) for IFO 380 in Saint Petersburg in December amounted to 300/331 (a difference of 31 USD, +2 USD compared to November), in Rotterdam: 333/367 (a difference of 34 USD, +14 compared to November); for IFO 180 in Saint Petersburg price fluctuations in December amounted to: 335/366 (a difference of 31 USD, +2 compared to November) compared to 351/385 (34 USD, +15 to November) in Rotterdam. As for MGO, the price difference in both hubs has leveled: average price in December was 551 USD/MT (compared to November’s difference of 2 USD in favor of Rotterdam). The minimum/maximum (USD/MT) for MGO in Saint Petersburg in December amounted to 572/623 (51 USD, +8 USD compared to November), in Rotterdam — 530/581 (51 USD, +17 compared to November). Growth in spread of extremum points, minima and maxima, in both ports indicates an increase in volatility in the MGO segment. Meantime, the price growth dynamics for MGO remained stably high.

Pic. 5. NovorossiyskIstanbul, 380/180 HSFO

Pic. 6. NovorossiyskIstanbul, MGO

420 400 380 360 340 320 300 280 260 240

Novorossiysk IFO 380 Istanbul IFO 380

Novorossiysk IFO 180 Istanbul IFO 180 396

361 345

377 354 340 335

334

312 320

331 330 311 297

338

344 335

339

333 326 316 310

314

297

292

290

283

353 338

363 350

389 379

391 386 376

359

359

321

309

299

Novorossiysk MGO 620 600 580 560 540 520 500 480 460 440

324

357 336

367

318

329

302

Istanbul MGO 587

553 552

598

570

564 537

538

549 524

521

547 507

559

497

513

587

597

544

499 509

494 456

477

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BUNKER REVIEW NovorossiyskIstanbul

DECEMBER 2017 Bunker fuel prices for Heavy Fuel in both: Istanbul and Novorossiysk showed slight correction downward in December. As of the end of December the difference of IFO 380 prices between Istanbul and Novorossiysk compared to November has virtually stayed the same and amounted to 17 USD still in favor of the Russian hub (against 20 USD in November). As for IFO 180, the price difference also has not changed and amounted to 5 USD in favor of Russian hub compared to 7 USD in November. The same situation is in MGO prices as well: only 1 USD difference in favor of Novorossiysk.

Minimum/maximum (USD/MT) for IFO 380 in Novorossiysk amounted to 347/368 (21 USD, -17 USD compared to November), in Istanbul: 365/390 (25 USD, +7 compared to November), for IFO 180: 370/402 — Novorossiysk (32 USD, -20 compared to November) and 380/410 – Istanbul (30 USD, +10 compared to November), and for MGO — 572/623 — Novorossiysk (51 USD, -1 compared to November) and 580/625 — Istanbul (45 USD, +20 compared to November). The analysis shows a decrease in the volatility of prices for heavy grades of fuel in the Russian port. The MGO average price situation in both ports remains stable with fairly large fluctuations of quotations during the month.

Pic. 7. Vostochnyi - Busan, 380 HSFO

Pic. 8. Vostochniy - Busan, MGO

Vostochnyi IFO 380 420 400 380 360 340 320 300 280 260 240 220

Busan IFO 380 392

380 355 335

337

329

316

319

333

348

311 302

301 266

270

277

264

402

363

315

329

334

264 247

Vostochnyi MGO

Busan MGO

640 595 577

590 540

551 524

532 511

513 511

502

508

478

490 440

522

537

422

425

420

514 504

479

484

542 507

500 485

390

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BUNKER REVIEW Vostochnyi - Busan

DECEMBER 2017 Unlike the Northern and Southern regions, in the Far-Eastern region the upward trend for all types of bunker fuel continued in December. At the same time, the difference in the cost of heavy grades of fuel in favor of the Russian port (despite the shortage of the product in the Far Eastern ports) further increased. IFO 380 was 68 USD cheaper in Vostochnyi compared to 63 USD in November. As for MGO, the price difference decreased a bit: 53 USD also cheaper in Vostochnyi than the respective product in Busan (compared to a 77 USD difference in November). Minimum/maximum (USD/MT) for IFO 380 in Vostochnyi amounted to 330/355 (25 USD, +5 USD compared to November), in Busan: 385/430 (45 USD, +30 compared to November), and for MGO: 530/580 — Vostochnyi (50 USD, 0 compared to November) and 575/615 – Busan (40 USD, +15 compared to November). The volatility of prices for Heavy Fuel in the Vostochnyi port declined in December while Busan showed a rather sharp increase in the range of minimummaximum extremum points, reflecting a general drop in bunker quotations on the global fuel market in the first half of the month.

5. Price indexes forecast for the world’s largest hubs for the next 6 months.

Price indices forecast: a product developed by specialists from MABUX, the official information distributor of ICE (London) and NYMEX (New-York), the world’s leading oil exchanges — based on the current moment trading situation. The forecast is developed using a group of consecutive oil futures prices, indicating the moment product price and certain dates in the future. Then the forecast index for bunker fuel is calculated, using a developed algorithm, which takes into account the real physical price for bunker fuel and error index, calculated for each port based on historical prices for bunker fuel over the last 30 days. Forecast indices are updated daily in the course of trading and indicate the global fuel market trend of the moment of forecast development. “Price Indices Forecast” function is available on the MABUX website for 38 world ports and covers the same period of trading of oil futures as well. As of the today for 380 HSFO — until March 2024, and for MGO — until December 2023. Below is the Price Index Forecast chart for the largest world hubs for 6 months (February 2018 — July 2018) as of December 29, 2017 (as compared to forecast data of November 30, 2017:

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14

BUNKER REVIEW

DECEMBER 2017 Table 6. Price indexes forecast, $ per tonne. (as of 29 December, 2017)

Port

Panama Rotterdam Singapore St.Petersburg Istanbul Fujairah Houston

*+/-

Fuel

Feb-18

*+/-

Mar-18

*+/-

Apr-18

*+/-

May-18

*+/-

Jun-18

*+/-

Jul-18

*+/-

380 HSFO

371

23

371

23

371

23

370

22

369

23

367

23

MGO

606

21

604

18

599

14

594

12

591

11

588

10

380 HSFO

367

21

364

20

362

19

360

19

359

19

357

18

MGO

582

43

580

40

575

36

570

34

567

33

564

32

380 HSFO

390

16

387

15

385

14

383

14

381

13

379

12

MGO

588

30

585

25

580

22

576

21

572

19

569

18

380 HSFO

333

15

330

14

328

13

327

13

325

12

324

12

MGO

582

44

580

40

575

37

570

35

567

34

564

33

380 HSFO

392

20

389

19

387

19

385

18

383

17

381

16

MGO

630

41

627

37

622

33

618

32

614

30

611

29

380 HSFO

382

13

379

12

377

11

375

11

373

10

371

9

MGO

628

17

625

13

620

9

616

8

612

6

609

5

380 HSFO

357

19

357

19

357

19

356

18

355

19

353

18

MGO

604

36

602

32

597

29

592

27

589

26

586

25

as compared with forecast dd. November 30, 2017

The December outlook turned to be more optimistic than the forecast for November. Bunker quotations virtually for all product types and largest world ports are clearly showing positive dynamics, which to a considerable extent indicates optimism of the global fuel market regarding re-balancing: a likely continued decrease in raw materials stock with increased oil and oil product consumption. Specifically, for Rotterdam the indicator has grown on average by 18-21 USD for 380 HSFO and by 32 — 43 USD for MGO (compared to November’s anticipated growth only of 9 USD for 380 HSFO and 12 — 15 USD for MGO), for Istanbul — further price growth by 16 USD for 380 HSFO, and by 21 — 41 USD for MGO (compared to November’s anticipated growth of 6 USD for 380 HSFO and 6 — 10 USD for MGO). For Singapore the rates of forecast growth slightly decreased: plus 12-16 USD (plus 25 USD in November) for 380 HSFO and plus 18 — 30 USD (29 — 34 USD in November) for MGO. The forecast growth in Saint Petersburg has also slightly decreased: plus 12-15 USD for IFO 380 (plus 19 in November). However, the forecast values for the MGO assumes a sharp increase: plus 33 — 44 USD for MGO (compared to plus 13 — 18 USD in November). In Panama, the forecast showed plus 22 — 23 USD for IFO 380 (plus 4 — 10 USD for November), and plus 10 — 21 for MGO (November: minus 9 — 12 USD). In general, the main anticipated indicators are still positive, which provides grounds for assuming, that the bunker fuel price uptrend will continue in medium-term outlook..

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BUNKER REVIEW

DECEMBER 2017 6. Price margin for heavy bunker fuel in base ports

Pic. 9. The indicator (Δ) the margin for heavy bunker fuel in the sea ports of RotterdamSt. Petersburg, $

40

39 36

35 33

28

30 27

25

28

24

23

25

25

23

20

15

15 янв.17

Pic. 10 The indicator (Δ) – the margin for heavy bunker fuel in the sea ports of Novorossiysk Istanbul, $

фев.17

мар.17

апр.17

май.17

июн.17

июл.17

авг.17

сен.17

окт.17

ноя.17

21

20

дек.17

35 30

33

25 20 19 15

15

18

19

20

19

17

16

14

10 янв.17

Pic. 11. The indicator (Δ) the margin for heavy bunker fuel in the sea ports of Vostochniy Singapore, $

фев.17

мар.17

апр.17

май.17

июн.17

июл.17

авг.17

сен.17

окт.17

ноя.17

дек.17

75 72 70

69

69 67

69

68

65 63 60 55 54

52

50

52 46

48

45 янв.17

фев.17

мар.17

апр.17

май.17

июн.17

июл.17

авг.17

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сен.17

окт.17

ноя.17

дек.17

16

BUNKER REVIEW

DECEMBER 2017 7. Regional bunker market turnover.

Fuel turnover calculation for regional bunker markets.

Calculation of regional bunkering market turnover may be performed with the unique proprietary method developed by Marine Bureau "Oil Terminals” LLC specialists. The method is based on counter analysis of various heterogeneous information flows. At the same time it implies a detailed analysis of the operational environment of the facilities at hand. Calculations under this method are highly accurate and are performed on special commission for a number of regions. The method of approximate estimation of bunker fuel turnover in a port (Bj index) is based on bunkering market turnover for the base year, number of ship calls for the period of calculation and fuel price ratio in base ports by basins: Bj = VxBB (i) (7.1) where V is the calculation parameter depending on fuel turnover in the base year, and the number of ship calls in the calculation and base years taking into account error coefficients.

BB(i) — bunker fuel price ratio in the foreign port Dz, where ship bunkering is possible, to Bunker price ratio index in Russian and bunker fuel price in Russian port Dr BВ (i) = Dz / Dr (7.2). foreign ports, BB (i) Dz is the sum of mean monthly prices for all fuel types in the foreign port (IFO380, IFO180 and MGO). Dr is the sum of mean monthly prices for all fuel types in the Russian port (IFO380, IFO180 и MGO). If IFO180 is not sold in a given port, IFO380 price is used instead of IFO180 price for calculation. In the North-West Rotterdam is taken as the foreign port and Saint Petersburg as the Russian port. ВB(i) for the North-West is designated as BBn. In the South Istanbul is taken as the foreign port and Novorossiisk as the Russian port. ВB(i) in the South is designated as BBs In the Far East Busan is taken as the foreign port, where bunker fuel prices correlate with Singapore price indices, and Vostochny is taken as the Russian port. ВB(i) in the Far East is designated as BBe. When the BВ(i) index value is over 1, it's more expedient to bunker in Russia; when it's under 1, it’s more expedient to bunker abroad.

Pic. 12 Price Index for bunker fuel in the Baltic basin BBn

1,09

1,09

1,07

1,07 1,05

1,06

1,03

1, 04

1,05

1,05

1,05 1,04 1,03

1,03

сен.17

окт.17

1,03

1,01 1,00 0,99 янв.17

фев.17

мар.17

апр.17

май.17

июн.17

июл.17

авг.17

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ноя.17

дек.17

17

BUNKER REVIEW Pic. 13. Price Index for bunker fuel in Azov-Black Sea basin BBs

DECEMBER 2017 1,05

1,05

1,03 1,01

1,01

1,02

ноя.17

дек.17

1,00 0,99

0,99

1,02

0,99

0,99

0,99

авг.17

сен.17

0,98 0,98

0,97 0,96 0,95 янв.17

Pic. 14. Price Index for bunker fuel in the Far East BBe

фев.17

1,25

мар.17

апр.17

май.17

июн.17

июл.17

окт.17

1,25 1,24 1,22

1,2

1,19

1,19

1,16

1,15

1,15 1,11

1,13

1,1

1,12

1,15

сен.17

окт.17

1,08 1,05 янв.17

фев.17

мар.17

апр.17

май.17

июн.17

июл.17

авг.17

ноя.17

дек.17

In recent years regional market turnover, particularly in the Far East, largely depends on transit bunkering intensity. Transit bunkering operation intensity (Bunker Call Only) depends on the difference of mean monthly IFO 380 fuel prices in the foreign and the Russian base ports (∆). For each basin there is a positive ∆ value, when transit bunkering becomes inexpedient, despite cheaper fuel in the Russian port. For instance, in the Far East it is inexpedient for superships to bunker in Russian ports, when the ∆ between Russian ports and Singapore/Busan is under 60—70 USD. Therefore, with a small difference in fuel prices, which does not cover the owner's expenses for an additional ship call, Bunker Calls Only become inexpedient. Section 4 hereof shows the dynamics of mean monthly price difference for IFO380 fuel, in base foreign and base Russian ports (∆) over the last 12 months. In the Baltic basin after hitting high values last year (∆) has been in the corridor of (15 — 39) USD and is highly likely to get into a narrower corridor of (23—28) USD. In the South basin in 2016 (∆) also reached high values, and since January 2017 has been in a narrow corridor at a relatively low level (14 — 21) USD. In the Far East basin absolute values of (∆) are larger than in other basins. Since March 2017 (Δ) fluctuates in sinusoidal form with a period of two months from the values of 46-52 USD up to values of 63-72 USD.In December 2017 (∆) has reached 68 USD which is a fairly high value. This way, the decrease of (∆) in 2017 compared to 2016 is seen in the Baltic and the Azov—Black Sea basins. The Far East basin is the only one of the three basins where relatively high (∆) values (with a periodic drop of 20-25 USD) stimulate transit bunkering. MABUX Consulting Company +46 42 140430 Email: [email protected] Web: www.mabux.com

18

BUNKER REVIEW

DECEMBER 2017 Below are the calculation results for approximate estimation index for bunker fuel turnover in Bj port using 7.1 formula.

It is noteworthy, that the real regional bunker market turnover value depends on many factors, including problems with bunker fuel supply to the region, the stance of public bunker market regulation structures, the deficiency of bunker fuel in the region, the level of competition and many others. However many years of bunker market analysis and consultations with market players indicate, that ship turnover and fuel market price ratio/difference in a first approximation are the defining factors, and Bj index, which takes into account both of these factors, with a certain degree of accuracy reflects the turnover dynamics trends in the regional bunker markets. Below is the Bj index dynamics for major ports of the Russian Federation (classified by basins) over the last 12 months

Pic. 16. Dynamics of Bj index for 12 months in the Baltic basin

250 224 214 200

203

189

182

194 161

150 123 97

100

50

0

69 21

92

105

79

105 88

82

66

63

63

96

96

19

22

61 20

23

23

21

16

16

19

янв.17 фев.17 мар.17 апр.17 май.17 июн.17 июл.17 авг.17

St.Petersburg

Bunker market in the Baltic basin ports in December 2017.

66

81

Ust-Luga

16 сен.17

18 окт.17

ноя.17

дек.17

Primorsk

In Saint Petersburg in December Bj index decreased compared to November by 38 items and amounted to 123 points. During the cold season (December through April) the Bj index in Saint Petersburg was in the corridor of relatively low values (92—132 points), and during the warm season it was in the corridor of relatively high values (178—224 points). That is due, among other factors, to lack of river-sea type ship calls in the autumn-winter period. Bj index drop in December is mainly due to decreased ship traffic from 646 to 492; at the same time the regional bunker fuel price ratio index BBn in December slightly increased from 1.04 to 1.05. It is noteworthy, that in the last 5 months a persistent trend of bunker fuel price increase is present again in Rotterdam (fig. 3 and 4 in the Section 4 of “Bunker Review”), previously seen at the end of 2016. In December 2017, prices for MGO continued to increase, but for heavy bunker fuels - slightly decreased. In general, this regional bunker market (in the enlarged sense) is quite active.On the whole the regional bunkering market is quite active. According to Marine Bureau “Oil Terminals” LLC specialists, Bj index dynamics accurately reflects regional bunkering market trends, but in Saint Petersburg specific features related to large number of sea-river type ship calls in the warm season make certain adjustments to Bj index dynamics. MABUX Consulting Company +46 42 140430 Email: [email protected] Web: www.mabux.com

19

BUNKER REVIEW Bunker market in the Baltic basin ports in December 2017.

DECEMBER 2017 The resolution of the College of Eurasian Economic Commission of November 1, 2016 No. 131 “On setting quantitative norms of bunker fuel transported as stock by sea vessels across the border of the Eurasian Economic Union”, which sets out a specific method of setting of consumed amount of bunker fuel for a vessel, to a certain extent influences the bunkering market, but not as much as in the Far East basin. Currently the company’s analysts are taking this issue under detailed consideration, after which we will be able to draw conclusions as to the prospects (or lack thereof) of restoration of precrisis condition of bunker fuel market in Saint Petersburg. In Ust-Luga Bj index in December was 96 points (the same as in November). The growth of the regional bunker fuel price ratio index BBn from 1.04 to 1.05 compensated a small drop in the number of calls (from 387 to 382). The further bunker trend along the port of Ust-Luga depends to a large extent on the bunker trend along the port of St. Petersburg. In Primorsk in December due to increased number of ship calls (98) Bj index increased by 3 items and amounted to 22 points. In Primorsk, as in the not included in fig. 15 Vysotsk, Bj index is relatively stable and to a lesser extent, than in Saint Petersburg, dependent on external factors.

Pic. 17. Dynamics of Bj index for 12 months in the Azov-Black basin

200

148

150

135

127

168

139

137

133

125

172

124

112

137

100

50

0

38

13 янв.17

38

13

39

15

фев.17 мар.17

34

14 апр.17

34

12

10 9 май.17 июн.17 июл.17

Novorossiysk

Bunker market in the Azov-Black basin ports in December 2017

33

38

33

11 авг.17

Tuapse

33

12 сен.17

37

44

13

15

окт.17

ноя.17

46

19 дек.17

Taman

In Novorossiysk in December Bj index increased by 4 items compared to November and amounted to 172 points. That is due to growth in number of ship calls from 532 to 555, while the regional bunker fuel price ratio index BBs remained at the same level (1.02).

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BUNKER REVIEW Bunker market in the Azov-Black basin ports in December 2017

DECEMBER 2017 It is noteworthy that up to November (five months in a row, and in contrast to the first half of 2017), there was a steady trend of rising prices for all types of bunker fuel in the port of Istanbul (Pictures 5 and 6, Section 4), also previously observed at the end of 2016. In December 2017, prices for MGO continued to rise while heavy bunker prices slightly decreased. In general, this regional bunkering market is rather active. However for now it does not allow us to speak of definite increased likelihood of a moderate uptrend in the regional bunker market. Restrictions based on the purpose of the call are lifted and immediate bunkering of Bunker Call Only ships is now possible, particularly, at the road of Novorossiysk and Tuapse ports. However, possible ship downtime in these ports and low value (17 USD as of December) of the price difference for heavy bunker fuel (∆) in Russian ports compared to Istanbul along with high port charges, make this service largely unattractive under the current economic conditions. In case (∆) changes, the situation might change as well. In Tuapse in December Bj index grew by 2 items and amounted to 46 points. That is mainly due to an increased number of ship calls up to 135. Regional bunker fuel price ratio index BBs remained at the same level (1.02). In Taman Bj index in December increased by 4 points and amounted to 19 points. That is largely due to an increased number of ship calls from 74 to 92.

Picture 18. Dynamics of the Bj index for 12 months in the Far Eastern Basin

300

285 254

250

244 254

227

240

238

240

227

249

232 200

150

218

181 147

142

153

129

126

137

136

147

143

72

75

120

135 100 79 50

62

62

14

12

13

79 14

69 17

68 14

75

74

15

17

70

68 16

15

13

14

0 янв.17 фев.17 мар.17 апр.17 май.17 июн.17 июл.17 авг.17

Vostochnyi

Nakhodka

сен.17

окт.17 ноя.17 дек.17

Vladivostok

Vanino

In Vostochnyi in December Bj index increased by 31 points compared to November and Bunkering market in the Far Eastern basin amounted to 249 points. An increased number of ship calls from 353 to 413 compensated the ports in December drop of BBe regional price ratio index for bunker fuel from 1.19 to 1.16. 2017

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BUNKER REVIEW

DECEMBER 2017

After the prices dropped in the first 6 months of 2017, in the last 6 months bunker fuel prices Bunkering market in in the port of Busan have been growing, which laid the ground for further restoration trend the Far Eastern basin (possibly not to the full extent) of the pre-crisis condition of the regional bunker fuel market. ports in December Besides, prices in Vostochnyi largely depend on whether there is a deficiency of heavy fuel in 2017 Primorye Region. Due to this the dynamics (∆) of heavy bunker fuel prices in Vostochny-Busan ports bears a fluctuating nature with a half-period of fluctuations, equal to 2 months. In December the (∆) value increased by 5 USD compared to November and amounted to 68 USD, which increased ship call motivation at Vostochnyi for the purpose of transit bunkering (Bunker Call Only). Based on statistical analysis, it can be assumed that in January 2017, the value (Δ) can decrease a bit compared to December.

The resolution of the College of the Eurasian Economic Commission of November 1, 2016 No. 131 “On setting quantitative norms of bunker fuel transported as stock by sea vessels across the border of the Eurasian Economic Union” has changed the regional bunker market conditions to a certain extent. Considering the fact, that potential transit bunkering market in the Far East basin is larger, than in other basins, full implementation of this resolution has a larger effect on the bunkering market in Russian ports in the Far East (including Vostochnyi), than on the bunkering market of ports of the Baltic and the South basins. In Nakhodka in December 2017 Bj index decreased by 14 items compared to November and amounted to 143 points (number of ship calls in December was 355, in November – 326). In this port the bunkering market is largely related to the bunkering market in Vostochnyi, and the prospects of the regional market highly depend on practical implementation of the Resolution of the College of the Eurasian Economic Commission of November 1, 2016 No. 131, on the difference of heavy bunker fuel prices in Vostochnyi-Busan ports and lack of deficiency on heavy bunker fuel in Primorye Region.

In Vladivostok in December Bj index increased by 3 items compared to November and amounted to 75 points. That is mainly due to an increase in the number of ship calls from 508 to 539. It must be taken into account that the bunkering market in Vladivostok as of the end of 2016 plummeted 3—3,5 times (by various estimates) compared to 2015. As in the previous case, the implementation of the Resolution of the College of the Eurasian Economic Commission of November 1, 2016 No. 131, sufficient difference of heavy bunker fuel prices in Vladivostok-Busan ports and lack of deficiency in heavy bunker fuel in Primorye Region have led to partial restoration of regional bunkering market in 2017 with the possibility of further restoration. In Vanino in December Bj index increased by 1 item compared to November and amounted to 14 points. Further bunker trend for the port is unclear.

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22

BUNKER REVIEW Table 3. Summary data on bunker turnover indices in the main Russian ports, December 2017 compared to November 2017

DECEMBER 2017 Port

Bj Index (bunker fuel turnover)

Trend

Change

Vostochny

249,44

31,34

114,4%

Vysotsk

15,47

-1,77

89,7%

Kaliningrad

5,83

-0,92

86,4%

Nakhodka

143,30

-4,03

97,3%

Novorossiysk

172,48

4,54

102,7%

Primorsk

21,51

2,53

113,3%

St.Petersburg

123,43

-37,64

76,6%

Taman

18,72

3,62

123,9%

Tuapse

45,31

0,87

102,0%

Ust-Luga

95,83

-0,66

99,3%

Vladivostok

75,12

2,84

103,9%

Vanino

14,32

0,85

106,3%

Analysis of the Bj index (bunker fuel turnover) in Russian ports showed that the Bj index reflects the trends of the bunker market activity in a particular port more than the state of the bunker market in a particular port in a certain period of time. As a consequence, the Bj index is largely correlated with the number of ship calls. In this regard, the specialists worked out the second (corrected) version of the index of regional bunker market turnover in Russian ports, denoted as Bj2: Bj2 = Bj + 100 (BB (i) -BB (i-1) (7.3) where BB (i) is the bunker price index in a certain basin in the month (i); BB (i-1) - is the bunker price index in a certain basin in the month (i-1) (previous month). The coefficient 100 was chosen by iteration and could be corrected in the future. The results of the Bj2 index calculation in December 2017 are shown in Table 4. Analysis of the results proved that the Bj2 index takes into account the difference in the cost of bunker fuel in Russian and foreign ports to a greater extent than the index Bj and so, reflects more accurate the state of the bunker market in a particular port in a certain period of time. Another option for the Bj index adjusting is the use of not the number of ship calls in a given month, but the fuel turnover in the specified period. This approach will make it possible to differentiate ship calls of big- and small tonnage vessels with different volumes of fuel tanks. However, this approach is applicable only to ports where ship calls of cargo ships prevail and are not applicable, for example, to the port of Vladivostok. Experts continue to optimize the bunker index system. 23 MABUX Consulting Company +46 42 140430 Email: [email protected] Web: www.mabux.com

BUNKER REVIEW Table 4. Two bunker turnover Indexes in the main Russian ports, December 2017

Conclusions for bunker market turnover estimation at 12 months-ends

DECEMBER 2017 Bj Index (bunker fuel turnover)

Bj 2 Index (the corrected (second) version of Вj Index)

Vostochny

249,44

246,77

Vysotsk

15,47

16,11

Kaliningrad

5,83

5,52

Nakhodka

143,30

140,64

Novorossiysk

172,48

172,17

Primorsk

21,51

22,16

St.Petersburg

123,43

123,12

Taman

18,72

18,41

Tuapse

45,31

42,65

Ust-Luga

95,83

96,48

Vladivostok

75,12

72,46

Vanino

14,32

14,32

Port

Bunker fuel price growth in foreign ports and increase in ship calls in a number of ports of the Russian Federation lay the ground for partial restoration of the Russian bunker market. At the moment we can definitely speak of a restoration trend in the bunker market in the Fat East; in other regions this trend is not as evident. Restoration of the Russian bunker market, in turn, will largely depend on the extent of implementation of the Resolution of the College of the Eurasian Economic Commission of November 1, 2016 No. 131 “On setting quantitative norms of bunker fuel transported as stock by sea vessels across the border of the Eurasian Economic Union”. The Resolution sets out the mechanism of calculation of the amount of bunker fuel, available for export by one particular vessel from the territory of the Eurasian Economic Union without putting it under custom procedures or payment of custom duties. Apart from this circumstance there is a number of factors influencing bunker markets. They include Russia’s large tax reform, which affects, and will possibly affect even more, the heavy fuel oil production volume. They also include the introduced restrictions imposed on bunker fuel for environmental reasons, and, as a consequence, promotion of LNG as bunker fuel. Another important factor is the deficiency of bunker fuel in the region. In this issue we have also presented preliminary results of the adjustment work on the system of bunker turnover indices. Subject to positive reaction from the market participants, this work on improving the bunker market index system will be continued. MABUX Consulting Company +46 42 140430 Email: [email protected] Web: www.mabux.com

24

BUNKER REVIEW

DECEMBER 2017

Subscription Dear reader! This is a signal issue of the Review distributed for free-of-charge. Preliminary subscription price from February 1, 2018: - 3 months (3 issues) is 275 EUR - 6 months (6 issues) is 545 EUR - 12 months (12 issues) is 1090 EUR Subscribers of MABUX information and analytical website are offered to subscribe with a 50-percent discount. To subscribe please contact: E-mail: [email protected] Skype: mabux_sweden Tel.: +46 42140430 We perform individual commissions for bunker market analysis. The team of authors will be thankful to readers for any remarks, comments or proposals for improvement of the offered product. MABUX Consulting Company +46 42 140430 Email: [email protected] Web: www.mabux.com

25