SEB predicts US$450-plus fuel price spread

A new report, the result of conversations with more than 100 shipping companies and refineries over the past year, suggests that IMO would favour a wide spread between ultra-low sulphur fuel oil (ULSFO) and HFO in order to drive the desired shift to lower sulphur emissions. However, author Bjarne Schieldrop, chief commodities analyst for SEB, said that IMO would likely aim to ease the impact by softening transitional measures to avoid unnecessary disruption.

The report confirms expectations that less than 2,000 ships will be equipped with scrubbers by 2020, meaning that demand for HFO will fall sharply from the current 4 million barrels a day to 0.4 million barrels a day or less. Demand will switch to ULSFO instead.

“This will push the global refining system’s upgrading capacity to the limit as 3-3.7 million barrels a day of high-sulphur fuel oil suddenly needs to be upgraded to ULSFO or gas oil,” said Schieldrop. “Ripple effects of this development will likely be felt across the whole oil product sector and further impact pricing of different crude slates.”

The 2020 HSFO to Gasoil price spread currently trades on a forward basis at US$320/tonne. SEB noted that the capacity limits on refinery upgrades would likely cause this spread to go beyond US$450/tonne in 2020.

Read the full report here.