Argus editors analyse what to watch for in the oil products markets as 2019 begins.
The oil business is one of constant change. However, 2019 promised to be a pivotal year as the industry readies itself for the implementation of tighter sulphur regulations for maritime fuel. A push to generally decrease fuel related emissions and the US’ on-going emergence as a net energy exporter are also looming over the world.
Read our Viewpoint analyses for oil products below.
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Viewpoint: Abe’s Japan hits setbacks on energy security
Japanese premier Shinzo Abe's policies have gone some way to enhancing the country's energy security over his six years in power. But a shift in geopolitical and oil market dynamics has set back supply diversification efforts.
Viewpoint: Asia bitumen market faces more turbulence
Asia-Pacific bitumen markets continue to be buffeted by non-fundamental factors, with volatile crude prices, the US-China trade war, new US sanctions on Iran and weakness in key currencies all affecting market activity in 2018. And while the demand outlook is largely stable for 2019, the pending implementation of tough new marine fuel emissions standards could impact production economics in the next 12 months.
Viewpoint: Asia delivered, cargo bunker markets diverge
The delivered bunker fuel market is likely to become even more dislocated from the cargo market in the lead-up to the January 2020 implementation of the International Maritime Organisation (IMO) cap on sulphur content in marine fuels. This will have adverse implications for marine fuel market participants that need to hedge their physical exposure — and could encourage a switch to swaps that settle on delivered bunker prices, in order to reduce any increase in basis risk.
Viewpoint: Asia gasoil, jet fuel supported by IMO 2020
Plans by the International Maritime Organisation (IMO) to cut sulphur content in marine fuels from 2020 are poised to affect Asia-Pacific middle distillates markets, as marine fuel users seek to blend gasoil with high-sulphur fuel oil to bring down sulphur content. This implies a reduction in middle distillate availability, directly hitting gasoil and jet fuel supply — and so prices and differentials — in the run-up to the implementation of the new requirements in January 2020.
Viewpoint: Asian biofuels demand on the rise
Asian biodiesel exports should receive a boost if the EU carries through plans to impose anti-subsidy duties (ASDs) on Argentinian biodiesel imports – but higher biodiesel blend mandates in Malaysia and Indonesia may limit export quantities available in 2019.
Viewpoint: Asia-Pacific heavy base oil prices fall
Asia-Pacific light-grade base oil prices held in a narrow range in 2018 as steady demand absorbed growing supplies. Heavy-grade prices were in a much wider range, with values surging in the first quarter of the year before sliding steadily throughout the rest of the year. By the fourth quarter the heavy-grade premium to light-grade prices had disappeared.
Viewpoint: California LCFS hits stride, hurdles remain
California regulators have solidified the role of the Low-Carbon Fuel Standard (LCFS) in the state's fight against climate change, but a series of fresh challenges await the program in 2019.
Viewpoint: Capacity surge pressures Asian gasoline
A surge in new refining capacity coming on line in Asia-Pacific will increase gasoline supplies and put pressure on refining margins in 2019.
Viewpoint: Clean tanker recovery hopes for Europe
Positive signs lie ahead for product tanker owners, as chartering rates ticked up significantly in the fourth quarter of 2018, and bunker prices fell at the same time. Fleet growth slowed compared with last year, and forecasts put oil demand growth slightly higher in 2019.
Viewpoint: Colonial diesel arbitrages to stay wide
The diesel arbitrage from the US Gulf coast to the northeast is poised to remain wide through January as Gulf coast differentials are expected to remain near the three-year lows hit in early December.
Viewpoint: Concerns around bunker specs to stay
Compatibility concerns and fuel availability will overshadow progress made in meeting approaching 0.5pc sulphur marine fuel regulation.
Viewpoint: Cracks, regulation to drive European VGO
The European vacuum gasoil (VGO) market will continue to be at the mercy of volatile product margins in 2019, exacerbated by the largest regulatory shake up in the oil market for a generation.
Viewpoint: Demand falls for Iranian base oils
Mideast Gulf base oils extended their rise in the first few months of 2018, before steadying in mid-year and then losing all of their earlier gains during the second half of the year.
Viewpoint: Depressed margins weigh on US VGO prices
US VGO differentials to the clean products 70:30 split rose to their highest level in almost four years near the end of November, signifying the weakest fluid catalytic cracker (FCC) margins since that time.
Viewpoint: Duties to support EU biodiesel production
European biodiesel values should find support in the first half of 2019 from the European Commission's proposed definitive countervailing duty on Argentinian biodiesel and its proceedings to investigate Indonesian product on similar terms.
Viewpoint: Europe fuel oil battles IMO headwind
The tightening global supply of fuel oil will continue to support prices and keep crack margins strong in northwest Europe during much of the first half of 2019. But high-sulphur fuel oil (HSFO) prices may start coming under pressure as early as the second quarter, as the effect of International Maritime Organisation (IMO) limits on sulphur content in shipping fuels from 2020 becomes more pronounced.
Viewpoint: Europe jet fuel supply to remain ample
Europe's jet fuel market will remain well-supplied going into 2019 and demand is likely to grow at a slower rate than in recent years.
Viewpoint: Europe Suezmax, Aframax markets challenged
Record-high freight prices in Suezmax and Aframax markets towards the end of 2018 boosted shipowner earnings after a disappointing start to the year. But net global fleet growth, looming International Maritime Organisation (IMO) regulations and Opec production cuts will challenge tanker markets in the coming six months.
Viewpoint: European bitumen supply to tighten
Logistical challenges and tighter supply will more than ever dominate the bitumen market during the busiest periods for paving work, while the disconnect from high-sulphur fuel oil (HSFO) prices will become more pronounced as 2019 progresses.
Viewpoint: European diesel to remain well-supplied
The European diesel market will remain well supplied in the first half of 2019, although pockets of tightness could emerge in regional markets as sustained gasoil backwardation cuts into stock levels.
Viewpoint: European naphtha values to stay weak
Naphtha supply will continue to outstrip demand in Europe in the first half of 2019. Winter consumption should help narrow the product's discount to crude from a four-year record in November, but European naphtha is unlikely to return to trading at a premium to North Sea Dated in the near future.
Viewpoint: Europe's refiners pin hopes on IMO effect
European refiners' fortunes will remain broadly tied to the strength of the middle distillate market in the first half of 2019, given a persistent regional gasoline oversupply and increased demand for gasoil ahead of a lower sulphur limit on marine fuel emissions from the start of next year.
Viewpoint: EV near-term impact on Calif products muted
California's support of electric vehicle use poses a long-term threat to the state's gasoline industry, but will not dampen demand in the near term.
Viewpoint: FSU base oils hold in narrow range
Base oil prices in the Baltic and Black Sea markets held in a relatively narrow range throughout 2018.
Viewpoint: India eyes foreign upstream investment
India is increasingly relying on foreign companies to drive oil and gas output growth and create jobs, as domestic private-sector investment fails to pick up. But continued policy uncertainty over price reforms and taxes threatens to scare off some investors.
Viewpoint: India’s EV uncertainty confuses investors
India continues to oscillate between oil-fuelled cars and electric vehicles (EVs), driven on short-term market factors and external political factors, rather than focusing on a coherent policy on EVs. The lack of guidance is confusing investors in the thermal fuel, battery and EV industries.
Viewpoint: Little biodiesel blending help from D4 RINs
D4 RIN credit prices in 2019 will provide little support for blending biomass-based biodiesel into the US fuel supply amid weak production margins and uncertainty with small refinery exemptions and the blender's tax credit (BTC).
Viewpoint: Midcon refiners readied for IMO rules
Refiners in the US midcontinent appear well-positioned to take advantage the arrival of new International Maritime Organization (IMO) sulphur regulations in 2020, having performed extensive maintenance on distillate-producing units during this fall's turnaround season.
Viewpoint: New fuels coming for European marine use
New fuels compatible with the International Maritime Organisation's (IMO) 0.5pc marine fuel sulphur cap should become more prevalent in the first half of 2019, with shipowners eager to gain operational experience.
Viewpoint: NWE gasoline margins under pressure in 2019
European gasoline crack spreads will remain narrow in the first half of 2019, as high stocks in the US continue to weigh on import demand.
Viewpoint: NYH gasoline remains well supplied in winter
New York Harbor gasoline will likely remain well supplied through the rest of winter as weak demand and steady imports help sustain stock levels before the market transitions to summer grades in March.
Viewpoint: Sellers target India with surplus base oils
Indian base oil prices trended lower in 2018 as a surge in supplies forced sellers to compete to secure buyers in one of the few markets able to absorb a large slice of these surplus volumes.
Viewpoint: Surplus hits NE Asian heavy-grade base oils
Northeast Asian base oil prices were mixed in 2018. Group I heavy-grade prices increased in the first four months of the year before a sustained slump. Group I light grades edged higher.
Viewpoint: Tighter supply to support Asia fuel oil
The Asia-Pacific fuel oil market will find support in the first quarter of 2019 from a decline in regional supplies, as refineries in India and the Mideast Gulf resume full operations at secondary units that in some cases have been off line since 2016.
Viewpoint: Tough 2019 for Asia long-range tanker market
The east of Suez long-range (LR) tanker market faces a challenging 2019, as the US-China trade war and the pending International Maritime Organisation (IMO) regulations on marine fuel sulphur content disrupt trade flows and add to costs.
Viewpoint: US C5 prices poised to remain weak
US natural gasoline prices are poised to remain weak throughout the rest of the first quarter diluent season as growing condensate production in Canada offsets the need for Gulf coast volumes.
Viewpoint: US EV adoption remains a distant vision
Lower fuel costs, higher vehicle costs and 'range anxiety' caused by a lack of refueling infrastructure will likely continue to curb widespread use of electric vehicles (EVs) in the US.