Uncertainty Still
Part of the problem with predicting IMO 2020’s pull on gasoil is that nobody is certain what’s going to happen with its main competitor fuel, a product known as very low sulfur fuel oil, or VLSFO.
Sawyer estimates demand will be around 1 million barrels a day for the residue-based version of the new grade next year, while JBC sees supply for the same material at more than double that. Citigroup Inc. says a relatively weak gasoil crack could be because of a misplaced assumption about the uptake of VLSFO.
The market for VLSFO is hotting up. Mediterranean refiners have started to sell cargoes, while Exxon Mobil Corp. recently announced it plans to offer 0.5% marine fuels in seven ports across Europe and Asia. Tanker owner Euronav NV has been buying up low-sulfur product for storage on one of the world’s biggest vessels.
Final Spread
Last but by no means least comes the so-called gasoil-to-fuel oil spread -- a marker for the price difference between compliant and non-compliant product. Bound up in this number are, essentially, the billions of dollars invested by shippers in scrubbers along with the hopes of refiners who have splashed out on expensive upgrading units.
With HSFO currently seen by some observers as overpriced and gasoil undervalued, the analysts expect the 2020 spread to widen from its current $305 a ton. Sawyer sees it reaching $350-400 a ton in the first quarter as refiners struggle to eliminate HSFO production. Wood Mackenzie anticipates it widening to about $380 a ton.
Bloomberg News.