If this were to happen, it would likely mean that Iraqi domestic fuel oil consumption would increase for power generation needs, so reducing export availability of fuel oil from the country. The coronavirus could even have an impact here, with a potential delay in scrubber installations.įinally, a factor which was more of a risk than a reality was the potential for the US not to extend waivers which allow Iraq to import natural gas and electricity from Iran. This would provide some additional support to the demand picture for HSFO. Thirdly, and this certainly shouldn’t come as too much of a surprise, we see more ships with scrubbers installed coming online. This move does also appear to reflect the limited availability of heavier crude grades for refiners in the US Gulf, given US sanctions against Venezuela. Secondly, there has been increased interest from US refiners to process HSFO and, looking at fuel oil imports into the US over the last few months, particularly towards the end of 2019, volumes did increase. There are several reasons behind this strength.įirstly, refiners would have made any adjustments they could, be it through refinery upgrades, or adjusting feedstock accordingly to minimise HSFO yields as we moved into 2020. The prompt crack in NW Europe has traded from around a US$30/bbl discount late last year to less than a US$15/bbl discount currently. While we have seen weakness in middle of the barrel products, fuel oil has strengthened, defying market expectations. This is evident in Asia, where we have seen VLSFO actually trading at a premium to marine gasoil. There also appears to be an element of hesitancy to more towards marine gasoil, with concerns over viscosity. This has happened despite several reports of off-spec VLSFO.
As a result, the pick-up in marine gasoil demand has not been as much as anticipated. However, from a shipping perspective, one of the key reasons why we have not seen strength in the market is the fact that demand for very low sulphur fuel oil (VLSFO) has been stronger than expected. A milder than usual winter, and the outbreak of the COVID-19 virus are just two factors adding further pressure on middle distillates.ĭemand for very low sulphur fuel oil has been stronger than expected Instead, gasoil cracks are trading at levels last seen in 2017, falling by more than 50% from their October 2019 highs. Expectations were that we would see a large share of the shipping industry shift to marine gasoil, which would be a bullish scenario for middle distillate cracks. One of the biggest surprises since the implementation of new International Maritime Organization (IMO) sulphur regulations is the weakness we have seen in the middle distillate market.
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