SEB sees no fuel availability issues in 2020

According to report author Bjarne Schieldrop, chief commodities analyst, SEB, the world’s refineries can produce more than enough 0.5% sulphur marine fuel oil (MFO) in 2020 using 0.5% straight run fuel oil, at a sufficiently high product price. Such compliant fuel is expected to trade at a US$90/tonne discount to 0.1% sulphur gasoil in the first three years of the new sulphur regime, before dropping to just US$90/tonne more than 3.5% sulphur heavy fuel oil (HFO).

SEB expects to see a “significant surplus” of HFO in 2020-22, as well as a sharply lower HFO 3.5% price. The bank also forecasts that production of MFO will cause the gasoil market to tighten as middle distillates are retained within MFO. As a result, the gasoil to HFO price spread will widen to more than US$450/tonne – and the MFO to HFO 3 spread to more than US$360/tonne – in 2020, before slowly and steadily decreasing as the market adapts.

However, the price of forward 2020 gasoil crack to Brent suggests that the market is set for considerable price volatility, the analysis suggests. The gasoil crack is at its highest since 2008, when the market was tight and Brent crude reached US$148 a barrel.

The report warns that the IMO regulation will affect oil product markets from the second half of 2019, resulting in a sharp widening of product spot price spreads. At that point, fuel buyers can expect a sharp increase in the 2020 forward gasoil 0.1% to HFO 3.5% price spread, SEB concludes.

The full report can be downloaded from The Motorship’s new whitepaper section.