Fuel oil supply tight ahead of 2020: IEA

The IEA expects supply of fuel oil to remain tight ahead of the marine-fuel sulphur cap in 2020, because of refinery upgrades and a reduction in medium-heavy crude production.

A 1.4mn b/d fall in output of medium-heavy crude grades since November, because of US sanctions against Iran and Venezuela and because of Opec production cuts, could have taken 500,000 b/d out of the residual fuel oil market, the IEA said. The IEA expects supply of medium-heavy grades to remain constrained.

The lightening of the global crude slate is narrowing the margin premiums of complex refineries over simpler ones and this may move the advantages the former have historically held over the latter, the agency said.

Strengthening fuel oil cracks in the past five months have rendered upgrading less viable, according to the IEA. it said Russian state-controlled Rosneft's decision to delay some upgrading projects could make commercial sense.

Global demand for residual fuel oil was 6.74mn b/d in the fourth quarter of 2018, down by 2.2pc from the corresponding period the prior year, the IEA said.

New regulations by the International Maritime Organization (IMO) will reduce the maximum sulphur content of marine fuels to 0.5pc, from 3.5pc currently, as of January 2020.