Viewpoint: Europe fuel oil battles IMO headwind

  • : Oil products
  • 18/12/19

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.

The downward trend in Russian fuel oil output will continue in the first half of 2019, as refiners launch new units as part of the country's modernisation programme. During 2017-18, the Russian refining sector expanded its coking and vacuum distillation capacity by 400,000 t/year and 4.6mn t/year, respectively. Over the next two years, the Russian refining sector will add a further 6mn t/yr of coking capacity, enabling it to turn more residual fuels into lighter products, including gasoil.

Exports from the FSU — Europe's largest supply region — fell by 6.8pc in the January-October period this year, to 44.2mn t, from 47.4mn t in the corresponding period last year. The decline helped send fuel oil margins to the strongest in 15 years in November. High-sulphur standard finished bunker grade RMG fuel oil barges — Europe's most liquid market — was assessed at an average discount of $2.99/bl to Urals crude cif northwest Europe in November, the narrowest monthly average discount since July 2003. RMG fuel oil's discount to Urals was on track to reach its lowest quarterly average since 2003 in the fourth quarter this year, having been at $4.50/bl on 1 October–4 December.

Refinery upgrades reduced fuel oil production in Europe to the lowest in more than two years in October this year, something that is likely to continue. Euroilstock data show fuel oil stocks were at their lowest level since at least 1990, partially because of the falling regional output.

ExxonMobil has started its new 50,000 b/d delayed coker unit (DCU) at its Antwerp refinery in October, which will take significant volumes of fuel oil off the market. The 150,000 b/d Flushing refinery in the Netherlands, owned by Lukoil-Total, is scheduled to complete its upgrade in 2019 to phase out fuel oil production.

Supply tightness will result from the reimposition of US sanctions against Iran, a major supplier of fuel oil and of sour crude, which yields large quantities of high-sulphur material. The Middle East's major storage and bunkering hub Fujairah, which used to get 60pc of its imports from Iran, has been importing increasing quantities of European and Russian fuel oil to make up for the shortfall.

The ex-wharf (fuel oil 380cst fob Fujairah barge) premium to 180cst Mideast Gulf fuel oil cargoes averaged $11.48/t in November, the highest monthly average since Argus launched the assessment in March 2017.

The removal of Iranian fuel oil from Asia-Pacific has coincided with firming demand for the product from regional power generation companies including South Korea's EWP, which has resumed operations at three fuel oil-fired power plants ahead of winter. This has been partially offset by falling demand from Pakistan, where imports reached 214,000t during the July-October period, a 90pc fall from the 2.12mn t imported a year earlier. Pakistan's refineries have been running at 60-70pc capacity to reduce the amount of fuel oil in their storage tanks.

Singapore's import demand may drop in the first quarter of next year, as higher imports in October and November drove inventories to their highest in four months, at 2.9mn t, at the end of November.

Opec and its partners are pledged to proceed with output cuts of 1.2mn b/d from October 2018 levels, concerned by consistently high crude and product stocks in the US, which have topped the five-year average in each of the past four months. A resulting decline in sour crude supplies will likely lead to further tightening of the HSFO market.

Fuel oil prices will come under substantial pressure in the second quarter ahead of implementation of the IMO decision to impose a worldwide 0.5pc sulphur limit on marine fuels. This will come into force in January 2020. Demand for HSFO will fall substantially, and the spread between the grade and IMO-compliant fuels such as 0.5pc sulphur fuel oil and gasoil will increase dramatically next year — the northwest European HSFO discount to North Sea Dated crude may widen by $18/bl in 2019 to $29/bl, according to an Argus model.

The IEA projects 3.1mn b/d of HSFO demand — nearly 80pc of the total — will be removed by the new regulations, with bunker fuel consumers switching to low-sulphur alternatives. Efforts to move to more suitable alternatives will intensify closer to the implementation date.


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24/04/22

Brazil 1Q tallow exports triple on long-term contracts

Brazil 1Q tallow exports triple on long-term contracts

Sao Paulo, 22 April (Argus) — Brazilian beef tallow exports totaled 73,930 metric tonnes (t) in the first quarter, a three-fold increase from the same three-month period in 2023 on rising demand. Almost 93pc of outflows between January and March were shipped to the US, according to data from Brazil's trade ministry. Long-term contracts explain the rising flow of exports, even though spot market arbitrage was closed throughout the first quarter (see chart) . The price of tallow in the Paranagua and Santos ports was $960/t fob on 19 April, keeping the arbitrage closed to US Gulf coast buyers, where the reference product was at $901/t on a delivered inland basis. Brazilian tallow is also negotiated at a premium against soybean oil, which closed at $882/t fob Paranagua on 19 April. This scenario has been observed since the 1 December 2023 start of Argus ' tallow export price assessment. Historically, vegetable oil in Brazil was traded at a discount to tallow, but strong demand has boosted the price of animal fat. Some biodiesel plants have been purchasing used cooking oil (UCO) or pork fat as an alternative. In 2023, there were doubts about whether the outflow of tallow from Brazil would be constant. Market participants now believe that the 2024 start of operations at new renewable diesel refineries in the US should sustain exports. Local suppliers that have already signed supply guarantee contracts — some up to three years — with American buyers are also considering export opportunities with Asia, including a new renewable diesel plant in Singapore that could receive Brazilian cargoes. Expansion projects are propelling US demand, including work that would bring capacity at Marathon Petroleum's Martinez Renewables plants in California to 2.35mn m³/y (40,750 b/d)and the Phillips 66 Rodeo unit in northern Californiato 3mn m³/y. These and other new projects will increase annual US demand for tallow by 5mn t. Maintenance on the horizon Maintenance at US refineries has Brazilian sellers bracing for a short-term drop in prices. Between May and June the Diamond Green Diesel (DGD) unit in Port Arthur, Texas, will shut down for maintenance, a stoppage that could impact demand for Brazilian inputs. Market participants have already observed a slight increase in domestic tallow supply, a change they attribute to maintenance at DGD. The advance of the soybean crop in Argentina is also expected to increase the supply of feedstocks to North American plants, as some refineries are returning to soybean oil after a hiatus of several years. The soybean oil quote on the Chicago Board of Trade (CBOT) is an important reference for the price of tallow. By Alexandre Melo Renewable feedstocks in Brazil on fob basis R/t Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Colombia's electricity woes add to unrest against Petro


24/04/22
24/04/22

Colombia's electricity woes add to unrest against Petro

Bogota, 22 April (Argus) — Colombians took the streets of major cities and towns across the nation on Sunday to protest mainly against health, pension and labor changes, but potential power outages are also creating discontent. Authorities estimated that about 250,000 Colombians marched in widespread protests, sparked by changes in healthcare. Congress in April had rejected President Gustavo Petro's proposals in the sector, and the government the next day seized the two largest private-sector health insurers. Protesting healthcare workers say the government did this to implement changes through a back channel. "Regulatory noise and risk are likely to remain high amid announcements, proposals, and measures [that do not require congressional approval], aimed at changing the game's rules in strategic sectors," brokerage Credicorp Capital said. Colombians also protested being on the verge of electricity rationing like that in neighboring Ecuador as hydroelectric reservoirs remain at record-low levels. Several unions and other associations have long warned the Petro administration to take measures to offset the effects of the El Nino weather phenomenon. Electricity distributors last year called for allowing bills for energy purchased on the spot market to be deferred and for loosening price index rules, among other proposals. The national business council sent at least three letters to the president on the issue. At least nine separate letters calling for preparation to prevent blackouts were sent to the president and ministers. Several actions were only recently implemented . "There are no risk of electricity rationing in Colombia," former energy minister Irene Velez said in 2023. "We do not understand why some people are interested in generating panic." Government weather forecasts also overestimated rainfall expected for March, leading hydroelectric plants to use more water in the reservoirs than they otherwise would have, said director of the thermoelectric generation association (Andeg) Alejandro Castaneda. Reservoir levels stood at 29.5pc today, rising thanks to rains since 19 April, up from 28.75pc on 18 April. Electricity rationing is set to begin when reservoirs drop below 27pc, according to grid operator XM. By Diana Delgado Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

German products demand up on supply concerns


24/04/22
24/04/22

German products demand up on supply concerns

Hamburg, 22 April (Argus) — German demand for heating oil and fuels rose sharply in the past week, with consumer concerns that conflict in the Middle East could restrict product availability were coupled with falling domestic product prices. Spot trade of heating oil, diesel and E5 gasoline submitted to Argus reached their highest weekly averages since the start of the year. The last time this amount of heating oil was traded was in December last year, and for gasoline and diesel it was at the beginning of October. Gasoline demand surged particularly in the Emsland and South regions, and middle distillates were primarily traded in Rhine-Main and Southwest. The missile attack by Iran on Israel on 13 April and Israel's drone attack on Iran on 19 April have heightened concerns of further escalation. An open conflict between Iran and Israel could affect supply of crude and gasoil from the Middle East by threatening major shipping routes of the Suez Canal, the strait of Hormuz and the eastern Mediterranean. These concerns led some German consumers to fill their tanks. Concurrently, product prices have fallen across Germany, further stimulating demand. Refineries in Karlsruhe and Neustadt-Vohburg have drawn buyers with fuel oil and gasoline prices below the German average. Heating oil at Miro's 310,000 b/d Karlsruhe traded at more than €2/100l below the national average, while gasoline at Bayernoil's 216,000 b/d Neustadt-Vohburg traded at a discount of almost €6/100l to the same average. By Johannes Guhlke Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Amapá cancela regime especial de ICMS


24/04/18
24/04/18

Amapá cancela regime especial de ICMS

Rio de Janeiro, 18 April (Argus) — O Secretário da Fazenda (Sefaz) do Amapá (AP) cancelou ontem o regime especial de tributação de empresas importadoras de combustíveis, colocando um fim a uma situação que gerava distorções de preços no mercado de diesel . A decisão do órgão foi publicada no diário oficial desta quarta-feira, dia 17, e contempla os regimes especiais do tributo estadual ICMS de oito empresas, entre elas a Refinaria de Manguinhos, que pertence ao grupo Fit, Amapetro, Axa Oil, Alba Trading e Father Trading. No caso da Amapetro, a empresa pagava uma alíquota efetiva de 4pc do valor da importação nas compras de outros países para uso próprio para consumo dentro do estado. Considerando a média do indicador Argus de importação de diesel de origem russa ao longo de março, isso equivaleria a R$136,9/m³.O valor atual do ICMS nos outros estados brasileiros é de R$1.063/m³ desde 1 de fevereiro. O estado teria importado 197.244m³ de diesel em março, de acordo com informações do Ministério do Desenvolvimento, Indústria, Comércio e Serviços (MDIC). Isso equivale a 15,9pc do total de diesel importado pelo Brasil no mês. O consumo de diesel A do estado foi de 6.250m³ no mês passado, equivalente a 0,1pc do consumo nacional, de acordo com os dados da Agência Nacional do Petróleo, Gás Natural e Biocombustíveis (ANP). As autorizações do estado criavam distorções de preços no mercado e perdas de arrecadação fiscal em várias estados onde o produto acabava sendo consumido. Associações de produtores e distribuidores de diesel vinham pressionando o poder público nos últimos meses para derrubar esses regimes especiais. De acordo com o Instituto Combustível Legal, a medida causou um prejuízo de R$1 bilhão aos estados onde o combustível importado no âmbito do regime especial era efetivamente consumido, citando os estados de São Paulo, Paraná e Pernambuco como principais destinos. No início do mês, a Refina Brasil, que reúne as refinarias de petróleo independentes do país, estimou que o contribuinte amapaense pagava um valor próximo a R$0,83/l em subsídios para importadores. Por Amance Boutin Envie comentários e solicite mais informações em feedback@argusmedia.com Copyright © 2024. Argus Media group . Todos os direitos reservados.

TUI Cruises receives methanol-ready ship


24/04/18
24/04/18

TUI Cruises receives methanol-ready ship

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