<article><p class="lead">Deliveries of Azeri light crude to Israel are higher this year, as the country's largest refinery switched to 0.5pc fuel oil production ahead of upcoming marine emissions regulation change.</p><p>Israel has imported around 74,000 b/d of BTC Blend this year, compared with 54,000 b/d in all of 2018, according to tracking firm Vortexa. This accounted for 32pc of all crude deliveries to Israel this year, up from 22pc in the whole of last year, making Azerbaijan Israel's largest crude supplier.</p><p>Israel's Bazan started producing 0.5pc sulphur fuel oil at its 197,000 b/d Haifa refinery this year. The refinery likely opted for more Azeri light crude as it yields fuel oil with a lower sulphur level than Israel's other primary sources of crude — light sour CPC Blend and medium sour Iraqi Kirkuk.</p><p>Israel has increased its purchases of BTC Blend even as the price has risen. BTC Blend averaged a $2.70/bl premium against North Sea Dated in the first half of 2019, compared with a $1.88/bl premium across the same time last year. BTC Blend exports from Ceyhan, Turkey, were just 3pc lower year-on-year in the first half at 660,000 b/d, but more has been heading long-haul leaving less available for refiners in the Mediterranean region. Buyers east of Suez have so far taken 23pc of BTC Blend exports this year, up from 21pc a year earlier.</p><p>Israel's other refinery, Paz Oil's 84,000 b/d Ashdod, might have received part of the Azeri crude deliveries. Paz does not plan to produce marine fuels, but will build a catalytic cooler unit to minimize fuel oil yield and increase production of gasoline, LPG and diesel.</p><p>Bazan has loaded two 30,000t cargoes of 0.5pc fuel oil this month, one of which discharged in Spain's Algeciras port, likely for storage. It will likely load two 30,000t cargoes of 0.5pc fuel oil per month if margins remain viable. The firm has provided two of the 10 30,000t cargoes of 0.5pc fuel oil delivered to shipping firm Euronav's ultra large crude carrier (ULCC) <i>Oceania</i> off Malta since May. Euronav was using the Oceania as floating storage, and it will sail to Singapore in the coming weeks.</p><p>Margins are strong for 0.5pc product as demand rises from the shipping industry for storage ahead of the International Maritime Organisation (IMO) rule change at the start of next year. </p><p>The traded price of 0.5pc fuel oil in the Mediterranean has been at a $50-60/t premium to west Mediterranean 1pc sulphur spot quotes, equating to an outright $447-457/t based on current prices. This would imply a premium of $6.16/bl for 0.5pc fuel oil against Ice September Brent crude's close at 16:30 BST yesterday, and compares with negative margins for high-sulphur fuel oil (HSFO).</p><p>Mediterranean regional refiners that will supply 0.5pc fuel oil include Italy's Saras, Iplom and Eni, Spain's Repsol and Cepsa, French-based Petroineos, Portugal's Galp and Greece's Hellenic.</p></article>
