Apr 03: With the advent of IMO 2020 reglations, there has been a lot of speculation on what is going to happen to HFSO in relation to LSFO.
Here are some observations:
8HSFO has been performing quite well recently with the spread to LSFO reaching low levels. But these differences are expected to widen ending-2019, as IMO rules are implemented and bunker fuel oil demand falls after 2020.
8IEA estimates a fall of HSFO demand from 3.5 mb/d to 1.4 mb/d between 2019 and 2020, with the 2.1 mb/d difference projected to be met by a 1.1 mb/d increase in MGO and a 1.0 mb/d increase in VLSFO.
8Refineries may have to increase runs to supply more diesel but this means diesel margins may need to rise and do most of the heavy lifting.
8OECD middle distillate stocks are at relatively low levels and therefore the buffers may be thin if gasoil demand rises above expectations.
8If low-sulphur Vacuum Gasoil (VGO) is diverted from the gasoline pool to create compliant fuel oil, gasoline margins are expected to rise.
8HSFO may also receive support if scrubber installations increase or if HDFO finds it way into the power sector, but for that to happen, it has to be priced competitively.
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