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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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25/02/17

German heating oil sales in February higher on the year

German heating oil sales in February higher on the year

Hamburg, 17 February (Argus) — German heating oil sales in February are up from the same month last year, mainly driven by colder weather. Diesel demand, on the other hand, is down. Heating oil volumes submitted to Argus in the week ending 14 February held steady compared with the week prior. But volumes in the first half of February have been around 70pc higher than in the same period in 2024, and many buyers' tank levels are very low. Temperatures in most regions of Germany in February were 1.1-2.1°C lower than the 1991-2020 average, according to weather information website Wetterkontor. Average consumer stock levels were just over 51pc on 12 February, according to Argus MDX. This is not unusually low for the time of year, but is 1.2 percentage points below the same day in 2024. Traded diesel volumes in February to date are around 15pc lower than in the first half of February 2024. Traders attribute this to worsening economic conditions and an increase in bankruptcies. The production index for the manufacturing sector in December was at its lowest since May 2020. Increasing use of alternative fuels such as HVO100 could also be linked declining diesel demand, at least regionally, although only to a small extent. HVO100 sales in Germany are gradually increasing, and Argus estimates that around 15,000m³ (around 3,150 b/d) are sold per month. Meanwhile, 65,000 b/d of diesel arrived in northern German ports in February. This is an increase of around 68pc compared with January. Of the arrivals this month, 40pc came from India. These are the first cargo deliveries from the Jamnagar refinery in India to northern Germany since November 2024. By Johannes Guhlke Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

Japan’s economy grows in 2024


25/02/17
25/02/17

Japan’s economy grows in 2024

Osaka, 17 February (Argus) — Japan's economy expanded for a fourth consecutive year in 2024 as corporate investment increased, even as oil product demand fell. Gross domestic product (GDP) rose at an annualised rate of 2.8pc in October-December, according to preliminary government data released on 17 February, following growth of 1.7pc in July-September and 3pc in April-June. This sent Japan's full-year 2024 GDP up by 0.1pc from a year earlier, its fourth straight year of growth after a Covid-19 induced slump in 2020. Nominal GDP amount totalled ¥609.3 trillion ($4 trillion) in 2024, exceeding ¥600 trillion for the first time. Investment by private-sector companies rose by 1.2pc from a year earlier in 2024, recording annualised growth of 1.9pc in October-December. The rise partially reflected a government push for a green and digital transformation of the economy in line with its 2050 net-zero emission goal. Such spending is expected to continue to increase under Tokyo's economic stimulus package. Japanese business federation Keidanren has forecast that nominal capital investment could rise to ¥115 trillion in the April 2027 to March 2028 fiscal year, up by 7.5pc from an estimated ¥107 trillion in 2024-25. But private consumption, which accounts for more than 50pc of GDP, dropped by 0.1pc from a year earlier in 2024, as inflation capped spending by consumers. This also probably weighed on demand for oil products such as gasoline, despite government subsidies. Japan's domestic oil product sales averaged 2.4mn b/d in 2024, down by 5.2pc from a year earlier, according to data from the trade and industry ministry Meti. Gasoline sales, which accounted for 31pc of the total, dropped by 2.2pc to 752,700 b/d over the same period. But Japanese electricity demand edged up by 0.7pc year on year to an average of 98.8GW in 2024, according to nationwide transmission system operator the Organisation for Cross-regional Co-ordination of Transmission Operators. Stronger power demand reflected colder than normal weather in March and unusually hot weather in October. Japan's real GDP is predicted to rise by 1.2pc during the 2025-26 fiscal year, following predicted 0.4pc growth in 2024-25 and a 0.7pc rise in 2023-24, the Cabinet Office said on 24 January. The figures are the Cabinet Office's official estimates and form the basis of its economic and fiscal management policies. By Motoko Hasegawa Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

German election impacts on energy and mobility sectors


25/02/17
25/02/17

German election impacts on energy and mobility sectors

Hamburg, 17 February (Argus) — Germany heads to the polls on 23 February, with its political parties divided over how to revive the country's struggling economy and shape climate policy in the face of continued concern over high energy costs. How the next government's policies are shaped could significantly impact regional energy markets and Germany's role as a key player in the European economy over the next four years. But most parties appear in agreement over maintaining the outgoing government's stance on Russian gas. Opinion polls suggest that support for the conservative CDU/CSU party has cooled in recent months, but it is still expected to be tasked with forming the next government. It is all but impossible for one party to win an absolute majority in the German parliament, so parties typically have to form a coalition. Support for the far-right AfD has grown in recent months, but the party still trails by some distance in second place. The CDU/CSU says it will not form a coalition with the AfD, so barring a dramatic surge in support for the latter in the final days of campaigning, a CDU-led coalition — possibly including the Social Democrats (SPD) and Greens — is likely to be in charge by the end of the month. The AfD's stance on energy and climate change is largely at odds with most other parties, but the CDU/CSU, SPD and Greens have some common ground. They all acknowledge the Paris climate agreement and EU Green Deal and seek to adhere to emissions reduction mandates, and they all plan to extend the scope of the EU emissions trading system (ETS). The three parties' manifestos chime on a need to reduce energy prices — which are widely seen as a key factor in the downturn in German industrial output — while transitioning to cleaner forms of transport and prioritising climate protection. But the parties diverge on how best to achieve these goals. Many energy-intensive industries in Germany have struggled with high gas prices since Russia embarked on its full-scale invasion of Ukraine in 2022. The three parties all say they will bring down energy prices by adjusting taxes and subsidies, and increasing power generation. The parties aim to cut network fees and electricity taxes as much as possible within the EU, and the SPD and Greens plan to encourage the European Commission to compensate energy-intensive industries for high power prices. The three all agree that further expanding renewable energy is the best way to reduce energy prices but, unlike the SPD and Greens, the CDU/CSU is unwilling to close coal-fired power plants until they are replaced, and it wants to assess whether it is technically and financially feasible to reactivate mothballed nuclear power plants. The AfD wants to expand coal-fired and nuclear generation and halt the expansion of solar and wind. Gas goals The CDU/CSU, SPD and Greens all support replacing fossil gas with hydrogen in power generation and manufacturing in the near future. How soon that can happen is up in the air. Industrial groups have cited hydrogen's high costs and constantly changing legal framework as barriers to its expansion, calling for the simplification of national and EU hydrogen legislation, the continuation of subsidies for domestic production, and more consumer incentives to substitute natural gas. But the CDU/CSU also wants to reverse the gas boiler ban introduced by the outgoing government, which mandated that new buildings install heating systems using at least 65pc renewable energy from January 2024. Instead, it proposes subsidising low-emission heating solutions — regardless of the technology on which they are based. If implemented, this could check the decline in residential gas demand, although gas consumption is likely to become less attractive after the heating and road sectors are included in the EU ETS from 2027, pushing gas costs up. The CDU/CSU has made it clear that it intends to continue adhering to the Paris and EU climate agreements, but says this is conditional on the "competitiveness of the German economy" and "social load limits". The AfD not only seeks to end putting a price on CO2 emissions altogether, it also wants to undo the EU emission reduction mandates as a whole. Crucially, none of the potential coalition partners plans to reverse course on Russian gas — unlike the AfD, which is calling for the lifting of all sanctions on Russia, including those on gas and oil imports into the EU. The AfD also intends to reopen the undamaged pipe B of the Nord Stream 2 pipeline to restart flows of Russian gas to Europe, and repair and reopen the Nord Stream 1 and 2 pipes that were damaged in September 2022. Vorsprung durch technik? On the question of the future of mobility in Germany, there is significant disagreement between the parties that might find themselves in a coalition government. While the SPD and Green party believe that e-mobility will be most relevant and want to maintain the ban on registering internal combustion engine (Ice) cars from 2035, the CDU and AfD advocate for "technology openness" and want to reverse these agreements. The SPD says that it wants Germany to remain a leader in car manufacturing, but with its focus on electric vehicles (EVs). In order to encourage consumers to buy EVs that are "made in Germany", it proposes tax cuts for domestically manufactured units. This might be a lesson learned from unintended consequences of the general subsidy for EV purchases that was phased out at the end of 2023 — this was as beneficial for foreign EV manufacturers as domestic ones. The Green party supports the same tax cuts, provided the car is mostly manufactured within Europe. The SPD and Green party also believe that eFuels should primarily be used in aviation or shipping, rather than on the road. They aim to establish a climate-neutral European aviation sector through rules to prevent ‘carbon leakage', with the Greens even aiming to make domestic flights unnecessary. The Conservatives and the AfD take a completely different approach — they believe that the market should decide which mode of mobility will prevail. Based on this belief, their main goal is to reverse the EU policy of banning new Ice car registrations from 2035. The CDU and AfD instead both aim to make Ice cars — probably running on eFuels — a financially competitive alternative to EVs. They do not believe it is the government's responsibility to influence markets in one way or another. For the AfD, this extends to not using public funds to finance vehicle charging infrastructure. The two parties also agree that EU fleet emission limits, or at least associated penalties, should be abolished to avoid subjecting the German car manufacturing industry to additional pressure. The CDU's lead in the polls — and the performance of the AfD — reflects the priorities of Germany's voters, which are focused most heavily on immigration and the state of the economy, with energy and climate policies much further down the list. The CDU leads approval ratings on expected handling of economic issues. So the party's view on how far Germany's shift from fossil fuels to renewable energy dovetails with reviving economic competitiveness could play a role in dictating the pace of the energy transition in Europe's largest economy in the years ahead. By Johannes Guhlke German power generation mix GW Change in gas demand by sector, y-o-y GWh/d German gas demand by year Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

EU nears lifting sanctions on Syria


25/02/17
25/02/17

EU nears lifting sanctions on Syria

Munich, 17 February (Argus) — The EU will meet on 24 February to discuss lifting sanctions on Syria, EU high representative for foreign affairs Kaja Kallas said on Sunday. But internal European politics and concerns raised by Greece and Cyprus over Turkey's growing influence in the region could slow the process. Speaking to Argus on the sidelines of the Munich Security Conference, Kallas said the prospect of lifting sanctions on Syria "is looking promising". The EU Foreign Affairs Council is scheduled to meet on 24 February to discuss Syria and other issues affecting the Middle East. France on 14 February convened an international conference on Syria in Paris, bringing together representatives from G7 nations, the EU, the UN, the Arab League, and the Gulf Cooperation Council. The parties issued a final statement calling for support of Syria's political transition, but the US did not join that statement. US sources with knowledge of the matter told Argus that the issues raised in the statement are things Washington has not decided on, since US president Donald Trump's administration is still formulating its policy regarding Syria. Another source with knowledge of ongoing European talks on Syria said Greece and Cyprus are more reluctant to lift sanctions on Syria. Any EU action will have to be agreed upon by all of the bloc's members. Both countries are leery of ties between Turkey and the Syrian Islamist group Hayat Tahrir al-Sham (HTS), the dominant faction in the new Syrian government. Greece and Cyprus are worried about an oversized Turkish influence in the eastern Mediterranean following the collapse of the regime of Bashar al-Assad in December. Sanctions remain one of the biggest obstacles to Syria's recovery. Damascus has been struggling to secure crude and refined oil products through public tenders largely because of those sanctions. Shipowners remain cautious about sending vessels there over concerns tankers being sanctioned or stranded. Last month the US waived sanctions prohibiting energy trade with Syria, but the country is still under EU and UK sanctions, which may have narrowed the pool for bidding. By Bachar Halabi Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

Indonesia's gasoline imports hit record high in Dec


25/02/17
25/02/17

Indonesia's gasoline imports hit record high in Dec

Singapore, 17 February (Argus) — Indonesia, Asia-Pacific's largest gasoline importer, imported record high monthly volumes of gasoline in December 2024, according to GTT customs data. Indonesia imported 475,000 b/d of gasoline in December, up by 29pc on the month and 24pc on the year. Indonesia imported 378,500 b/d of gasoline in 2024 compared with 369,000 b/d in 2023. Singapore, a major gasoline blending hub, continued to be Indonesia's main supplier at 279,000 b/d of imports in December, followed by Malaysia at 97,000 b/d. The reason for the surge in import demand cannot be confirmed but could be because of an increase in Indonesia's 92R gasoline appetite as the government sought to introduce restrictions to ensure subsidised 90R gasoline fuel went to the targeted economic group. Indonesia's state-controlled refiner Pertamina issued a series of very prompt spot 92R gasoline tenders for loading in December. The prompt tenders arose because of an increase in domestic 92R gasoline demand, Indonesia-based gasoline traders said. This is a result of a combination of a narrower 90R and 92R price spread and the new restrictions, added a trader. The Singapore 92R gasoline crack spread, or the Argus Singapore 92R gasoline spot price against ICE Brent, averaged at $8.18/bl in December, as compared to an average of $5.47/bl in November, according to Argus' pricing data. By Aldric Chew Indonesia's gasoline import volume: GTT (b/d) Send comments and request more information at feedback@argusmedia.com Copyright © 2025. Argus Media group . All rights reserved.

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