THE UN's shipping fuel shake-up is not playing out the way pundits thought it would, reports Dubai-based MENA Financial.
Dirty high-sulphur fuel oil was forecast to plunge, cleaner alternatives like diesel would rise, while demand for heavier and sour crudes used to produce HSFO would decline.
But in defiance of the common wisdom, only one of those three things has happened. High-sulphur fuel oil has, as expected, plummeted - in steady decline since August and are now at a record US$25 per tonne discount.
Dirty fuel oil is now so cheap that it's becoming attractive for electricity generators in places like Pakistan, where there is a lack of environmental rules prohibiting its use.
Prices are likely to lurch even lower when a so-called fuel-carriage ban that will prevent vessels without scrubbers from carrying HSFO for later use takes effect March 1, said the MENA Financial report.
Diesel, specifically marine gasoil, was expected to be the big winner from UN's IMO 2020. But the emergence of alternatives such as very low-sulphur fuel oil and sluggish economic growth in Asian powerhouses like China and India has contributed to a glut that's weighed on prices.
Returns from making diesel from crude in Singapore were at $14.41 a barrel on November 26, near a six-month low. The profits, or refining margins, have averaged $16.81 so far this half, compared with an August estimate by Goldman Sachs Group Inc for an average of $17.60 over the six-month period.
Sour crude with a high-sulphur content prevalent in the Middle East and parts of Latin America was expected to take a hit relative to sweeter grades from the US and North Sea. That's because there's only a limited number of refineries that can process sour varieties into less-polluting fuels.
In reality, however, the spread between sour Dubai crude and sweet Brent has barely budged. Citigroup analysts predicted in April that Brent's premium over Dubai would widen to more than $8 a barrel later this year due to IMO 2020. It was $3.10 on Tuesday.
US sanctions on Iran and Venezuela have crimped the availability of sour crudes, while, more recently, protests in Iraq may have spurred demand on fears the unrest may worsen and affect production.
WORLD SHIPPING
Dirty high-sulphur fuel oil was forecast to plunge, cleaner alternatives like diesel would rise, while demand for heavier and sour crudes used to produce HSFO would decline.
But in defiance of the common wisdom, only one of those three things has happened. High-sulphur fuel oil has, as expected, plummeted - in steady decline since August and are now at a record US$25 per tonne discount.
Dirty fuel oil is now so cheap that it's becoming attractive for electricity generators in places like Pakistan, where there is a lack of environmental rules prohibiting its use.
Prices are likely to lurch even lower when a so-called fuel-carriage ban that will prevent vessels without scrubbers from carrying HSFO for later use takes effect March 1, said the MENA Financial report.
Diesel, specifically marine gasoil, was expected to be the big winner from UN's IMO 2020. But the emergence of alternatives such as very low-sulphur fuel oil and sluggish economic growth in Asian powerhouses like China and India has contributed to a glut that's weighed on prices.
Returns from making diesel from crude in Singapore were at $14.41 a barrel on November 26, near a six-month low. The profits, or refining margins, have averaged $16.81 so far this half, compared with an August estimate by Goldman Sachs Group Inc for an average of $17.60 over the six-month period.
Sour crude with a high-sulphur content prevalent in the Middle East and parts of Latin America was expected to take a hit relative to sweeter grades from the US and North Sea. That's because there's only a limited number of refineries that can process sour varieties into less-polluting fuels.
In reality, however, the spread between sour Dubai crude and sweet Brent has barely budged. Citigroup analysts predicted in April that Brent's premium over Dubai would widen to more than $8 a barrel later this year due to IMO 2020. It was $3.10 on Tuesday.
US sanctions on Iran and Venezuela have crimped the availability of sour crudes, while, more recently, protests in Iraq may have spurred demand on fears the unrest may worsen and affect production.
WORLD SHIPPING