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IEA: There Won’t Be A Low-Sulfur Fuel Oil Crisis

Supply of shipping fuels compliant with the stricter, low-sulfur, regulations are growing at a fast pace and are at adequate levels at the key hubs around the world, the International Energy Agency (IEA) said on Thursday.

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).

In previous months, refiners, traders, and buyers have been bracing for what was expected to be “the single largest oil market disruptor” and there were concerns that supply of low-sulfur fuels, especially very-low sulfur fuel oil (VLSFO), could not be enough.

The IEA allayed those concerns today, saying that early data shows that supply is rising fast.

“We are starting to see the first data on the transition and, it appears that deliveries of the new VLSFO bunkers are increasing fast,” the IEA said in its monthly Oil Market Report, as carried by Reuters.

“Although there are initial local difficulties as might be expected from such a complex global change, ship operators, products suppliers and ports have so far coped well,” the Paris-based agency said in its report.

“As the new IMO rules are introduced, cracks for compliant VLSFO made large gains and HSFO in Singapore drew some support on demand from ships fitted with scrubbers,” the IEA noted.

Due to the new IMO rules, demand for heavy and sweet crude grades is high, as those are the most suited for processing into low-sulfur fuel for ships. 

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Strong demand for heavy-sweet crude grades has resulted in a recent spot tender in which a crude from Australia sold for close to US$100 a barrel, making it what traders said was probably the most expensive crude in the world.

By Tsvetana Paraskova for Oilprice.com

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