Extended Saudi Crude Cuts to Keep Scrubber Spread Narrow: GRM

Arne Lohmann Rasmussen is head of research at GRM. Image Credit: Arne Lohmann Rasmussen / LinkedIn

This week's announcement that Saudi Arabia will extend its crude output cuts to the end of the year is likely to keep scrubber spreads at their current narrow levels, according to hedging firm Global Risk Management.

Saudi Arabia's government announced on Tuesday that the country's crude production will be held at about 9 million b/d in October, November and December, going beyond the cuts required of the country under OPEC deals. Russia also announced a similar extension of its smaller output cuts.

The move is likely to add to tightness in HSFO supply as refiners replace the Saudi oil with replacements that yield lower HSFO output when refined, Arne Lohmann Rasmussen, head of research at GRM, said in a LinkedIn post on Wednesday.

"Extending the Saudi and Russian supply cuts for the next three months, and probably well into 2024, will result in even less heavy/sour crude oil in the market with a high residual oil content," he said.

"It means less residual oil in the market.

"The replacement oil has primarily been light/sweet oil from the US with low sulfur content."

Image Credit: Ship & Bunker

Tightness in HSFO markets over the summer has delivered a much narrower spread between VLSFO and HSFO across the world -- a key measure of the savings shipping companies can access by using a scrubber and buying cheaper HSFO.

The price spread between Ship & Bunker's G20-VLSFO and G20-HSFO Indices, reflecting average prices across 20 top bunkering locations, stood at $86/mt on Tuesday. That compares with a spread of $186.50/mt at the start of the year, an average spread this year of $129.50/mt and the 2022 average of $239.50/mt.

A new record low of $64/mt was reached on August 23.