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Argus: IMO fuel premium could be only $100/t: Phillips 66

20 Jun 2019

Global energy and commodity price reporting agency Argus Media in on Wednesday (19 June) provided a marine fuels industry related update:

The price premium between 0.5pc and 3.5pc sulphur fuel oil could be as low as $100/t next year, according to US refiner Phillips 66.

That would be half the current futures price premium for the average of 2020 of 0.5pc over 3.5pc sulphur fuel oil barge in Rotterdam. Other suppliers have forecast higher price premiums in 2020, such as Spanish refiner Cepsa which expects a $300/t differential.

"Maybe in a year's time, all else equal, we end up paying a little more than $100/t more than we are today for 3.5[pc sulphur]," Phillips 66 marine strategist Simon Newman said at the Sulphur 2020 Countdown conference. He gave two possible scenarios for this.

One is the possibility of there being more crude in the market next year, which would lower the price and consequently the absolute price of the new 0.5pc sulphur fuels. Another is that lower global economic growth could weigh down on diesel demand and lessen the upward pressure of the International Maritime Organisation (IMO) rules on marine gasoil (MGO) prices, as diesel and MGO are both from the distillate pool. The price of crude usually has greater effect than the bunker fuel supply-demand balance on bunker prices.

The "flat price plays a key role" in bunker fuel price volatility, said BP Marine key account manager Adrian Pask. The price of 0.1pc sulphur MGO reached to $900/t in the summer of 2014, when the crude price was above $100/bl. The subsequent fall in crude pulled the MGO price down to $600/t by January 2015, and this coincided with a reduction in sulphur limits to 0.1pc in Emission Control Areas (ECAs).

But while the ECA 2015 sulphur caps were regional, IMO 2020 is a global cap, so the effect on global bunker demand will be greater. Today, 80pc of the world's bunker fuel demand is for high-sulphur fuel oil (HSFO), according to the International Bunker Industry Association (IBIA).

The IEA expects HSFO demand to fall by 60pc in 2020, from 3.5mn b/d to 1.4mn b/d. The agency expects 0.5pc sulphur fuel oil demand to fill 1mn b/d of that gap in 2020, and that MGO will displace HSFO as the main marine fuel next year.

Source: Argus Media
Published: 20 June, 2019


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