Asian Crude and Products Market
Crude Market
Having the news of 14 September attacks on Saudi oil facilities in Abqiaq and Khurias; and then its oil production recovery to normal level indeed brings an obvious view to have a downside price trend in October compared to September. Crude oil price reduced by around $ 3 per barrel in October, correcting the tensions was occurred after attacks on Saudi Aramco’s oil facilities. This sounds almost simple, but light grades of crude oil which Saudi Aramco claimed to recover the production, is still tight and would be likely the case as we get closer to 2020. The year 2020 is expected to be challenging as IMO new regulation would be applied as of 1 January 2020. Considering IMO and looking forward, the gap of light and heavy grades of crude oil is expected to go wider in 2020.
Products Market
On the products side, though natural, situation is misty. As we are getting closer to the year 2020, there are still the uncertainties on how the market would be shaped on the bottom and middle of the barrel.
The International Maritime Organization (IMO) has ruled that from the above date, marine sector emissions in international waters be slashed. The marine sector will have to reduce sulfur emissions by over 80% by switching to fuels with lower sulfur content. The current maximum fuel oil sulfur limit of 3.5 weight percent (wt %) will fall to 0.5 wt%. IMO 2020 regulations will see the largest reduction in the sulfur content of a transportation fuel undertaken at one time. To this end, market players started to be prepared to supply lower sulfur bunker grades or be able to consume the higher sulfur ones. This is not; however, as simple as it seems to be. Singapore, the largest bunkering hub, appears not to be capable of supplying lower sulfur bunker grade in 2020, as it did normally around 45 mmt per year. By the virtue of the fact that Asia will face insufficiency of low sulfur fuel oil, gasoil producers enjoy comparative advantage to offer more gasoil as bunkering. Asian gasoil producers ready themselves to make IMO compliant bunker fuel.
China is one of the substantial gasoil producers in Asia. It started to make Zhoushan Island equipped and accessible to supply bunkers to the ship-owners, collecting the profits of its comparative advantage.
Taking all above mentioned into account, market is in favor of Middle products and against heavy products. How about light products? They should be strong, as the market is moving to demand more light crude grades aiming to produce less fuel oil and more gasoil. Gasoline and naphtha are now passing their boom days. They are both highly demanded. Strong petrochemical demand on easing steam cracker turnarounds may also further support naphtha market. Despite the healthy demand of gasoline and naphtha, margins have also come under pressure from soaring freight rates that now make it considerably more expensive to fix cargos to Asia.
In spite of all above rational responses of market players ahead of IMO 2020, there are mixed feelings on the coming situation.