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Weeks before new worldwide rules on cleaner fuels for ships enter into force, refiners in Asia finally began to see refining margins for those cleaner marine fuels rising, albeit later than what was expected at the start of this year.
According to refiners and traders in Asia who spoke to Reuters, shipping companies—who had been slow to purchase very-low sulfur fuel oil (VLSFO) and marine gasoil earlier this year—have started this month to buy more of those cleaner fuels, creating the demand refiners had expected and driving refining margins up.
According to the new rules by the International Maritime Organization (IMO), only 0.5-percent or lower sulfur fuel oil should be used on ships beginning January 1, 2020, unless said ships have installed the so-called scrubbers—systems that remove sulfur from exhaust gas emitted by bunkers—so they can continue to use high-sulfur fuel oil (HSFO).
The new regulation will lead to low-sulfur fuel oil (LSFO) displacing HSFO demand, but the change looks less dramatic now than it did several months ago.
Supply of compliant low-sulfur fuel could be just as sufficient, while demand may be subdued, due to the global economic and trade growth slowdown and at least some non-compliance from shippers, which analysts at Wood Mackenzie put at around 10 percent for 2020.
As December began and we are just weeks away from the new shipping fuel rules, shippers have started to buy more compliant fuel and refiners in Asia see refining margins rising and plan to boost production of VLSFO and marine gasoil early next year.
Currently, supply of VLSFO could meet up to 70 percent of cleaner fuel demand in the near term in Asia and the Middle East, a Singapore-based trader of marine fuels told Reuters. The rest of the demand should have to be met with supplies of marine gasoil, and this supply picture of cleaner marine fuels is expected to drive up refining margins for both VLSFO and for marine gasoil, the trader said.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.