Post-2020 Distillate Demand Spike a Boost to Clean Product Trades

Monday February 12, 2018

The new 0.5% sulfur cap on marine fuel is likely to lead to large disruptions to oil product cargo flows, according to maritime news provider Lloyd's List.

In an analysis of post-2020 trade flows, the article said that producers supplying marine gasoil (mgo) to bunkering hubs across the globe are expected to be in different locations from those currently providing high sulfur fuel oil (HSFO).

Refineries face low-sulphur demand from the land transport sector as well as their own emission restrictions, so producing more compliant marine fuel would not be given priority, according to a medium-term market outlook from the International Energy Agency.

At the same time, demand for distillate grade fuel is expected to rise.

"Global gasoil demand will see a substantial increase as MGO is assumed to comprise majority of the demand swing, which could total about 2.5 million barrels per day — 3 million bpd at the top end of the potential range," Maritime Strategies International's director for oil and tanker markets Tim Smith was quoted as saying.

Greater distillate demand will mean more demand for clean tankers.

"We agree that there will be a spike in demand for MGO. As there bound to be shortages in some regions, this will support product (clean) tanker demand and the emergence of new trades," Gibson's senior market analyst Svetlana Lobaciova was quoted as saying.

The incremental post-2020 flows will likely emerge from India, China, Russia, the United States and the Middle East to Singapore, Fujairah and Europe.

Singapore is expected by many to transform into a major mgo import centre from HSFO import.

Based on the IEA forecast, Asia will need to keep all clean products within the region come 2022, in part, to meet the bunker demand while clean product flows from either the Middle East or the Atlantic Basin will double from their 2016 level, the article said.

On the other hand, the incremental distillate demand will come at the expense of HSFO trades, which occur on aframaxes, suezmaxes and very large crude carriers. The cargo flows are from Russia, the US, Venezuela and Saudi Arabia to Singapore, Rotterdam and Hong Kong.