The sulfur content of transportation fuels has been declining for many years as a result of increasingly stringent regulations. In the United States, federal and state regulations limit the amount of sulfur present in motor gasoline, diesel fuel, and heating oil. New international regulations limiting sulfur in fuels for ocean-going vessels, set to take effect in 2020, have further implications for both refiners and vessel operators at a time of high uncertainty in future crude oil prices, which will be a major factor in their operational decisions.
Bunker fuel—the fuel typically used in large ocean-going vessels—is a mixture of petroleum-based oils. Residual oil—the long-chain hydrocarbons remaining after lighter and shorter hydrocarbon fractions such as gasoline and diesel have been separated from crude oil—currently makes up the largest component of bunker fuel. The sulfur content of crude oil tends to be more concentrated in heavier hydrocarbons, with heavier petroleum products such as residual oil having higher sulfur content than lighter ones like gasoline and diesel.
The International Maritime Organization (IMO), the 171-member United Nations agency that sets standards for marine fuels, decided in October to move forward with a plan to reduce the maximum allowable levels of sulfur and other pollutants in marine fuels used on the open seas from 3.5% by weight to 0.5% by weight by 2020. This decision follows several other marine fuel regulations limiting sulfur content, such as the implementation of Emissions Control Area (ECA) requirements in coastal waters and specific sea-lanes in North America and Europe, which limited the maximum sulfur content of fuels to 0.1% by weight starting in July 2015.
The IMO sulfur limits that take effect in 2020 will affect the fuel used in the open seas, the largest portion of the approximately 3.9 million barrels per day of global marine fuel use. These limits will present several challenges for both refiners and shippers.
The first challenge for refiners is to increase the supply of lower sulfur blendstocks to the bunker fuel market. Refiners have several potential paths. One approach is to divert more low-sulfur distillates into the bunker fuel market. Another option is to use low-sulfur intermediate refinery feedstocks in bunker blends.
A second challenge for refiners is deciding what to do with the high-sulfur residual oil that can no longer be blended into bunker fuel. Adding capacity to desulfurize residual oil is one option, but the economics to do so are not currently attractive to refiners. An alternative strategy is to build or expand refinery units that take heavy hydrocarbons and upgrade them into lighter, more valuable products. In either of these cases, refineries would be faced with investments and costs that are acceptable only if there is certainty of future demand from the shipping industry.
Vessel operators also have several choices for compliance with the new IMO sulfur limits. For example, IMO regulations allow for the installation of scrubbers, which remove pollutants from ships' exhaust, allowing them to continue to use higher sulfur fuels. Some ship owners that operate primarily in coastal areas, such as cruise lines and ferries, opted to install scrubbers on their vessels as the new ECA regulations came into force. The possibility of widespread scrubber installations, which would allow ships to continue to use higher sulfur residual oils, could make refiners hesitant about making large investments to build refining units capable of upgrading the residual oils.
Ships also have the option of switching to new lower sulfur blends or to nonpetroleum-based fuels. Some newer ships can use liquefied natural gas (LNG) rather than petroleum-based products. However, the infrastructure to support the use of LNG as a shipping fuel is currently limited in both scale and availability.
Vessel operators and shippers will also likely be faced with higher costs as the sulfur content in marine fuels decreases and as the role of distillate in the bunker fuel market increases. An example of the price difference between fuels can be observed at the Amsterdam-Rotterdam-Antwerp refining and trading hub in Northwest Europe. In 2016, prices for low-sulfur gasoil, a type of distillate, have averaged over $20 per barrel more than high-sulfur fuel oil (residual oil for use as a fuel) to date. Fuel blends used to meet the new IMO regulations are likely to be priced somewhere between these two fuels.
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In the last week, global crude oil price benchmarks have leapt up by some US$5/b. Brent is now in the US$66/b range, while WTI maintains its preferred US$10/b discount at US$56/b. On the surface, it would seem that the new OPEC+ supply deal – scheduled to last until April – is working. But the drivers pushing on the current rally are a bit more complicated.
Pledges by OPEC members are the main force behind the rise. After displaying some reticence over the timeline of cuts, Russia has now promised to ‘speed up cuts’ to its oil production in line with other key members of OPEC. Saudi Arabia, along with main allies the UAE and Kuwait, have been at the forefront of this – having made deeper-than-promised cuts in January with plans to go a bit further in February. After looking a bit shaky – a joint Saudi Arabia-Russia meeting was called off at the recent World Economic Forum in Davos in January – the bromance of world’s two oil superpowers looks to have resumed. And with it, confidence in the OPEC+ club’s abilities.
Russia and Saudi Arabia both making new pledges on supply cuts comes despite supply issues elsewhere in OPEC, which could have provided some cushion for smaller cuts. Iranian production remains constrained by new American sanctions; targeted waivers have provided some relief – and indeed Iranian crude exports have grown slightly over January and February – but the waivers expire in May and there is uncertainty over their extension. Meanwhile, the implosion in Venezuela continues, with the USA slapping new sanctions on the Venezuelan crude complex in hopes of spurring regime change. The situation in Libya – with the Sharara field swinging between closure and operation due to ongoing militant action – is dicey. And in Saudi Arabia, a damaged power repair cable has curbed output at the giant 1.2 mmb/d Safaniuyah field.
So the supply situation is supportive of a rally, from both planned and unplanned actions. But crude prices are also reacting to developments in the wider geopolitical world. The USA and China are still locked in an impasse over trade, with a March 1 deadline looming, after which doubled US tariffs on US$200 billion worth of Chinese imports would kick in. Continued escalation in the trade war could lead to a global recession, or at least a severe slowdown. But the market is taking relief that an agreement could be made. First, US President Donald Trump alluded to the possibility of pushing the deadline by 2 months to allow for more talks. And now, chatter suggests that despite reservations, American and Chinese negotiators are now ‘approaching a consensus’. The threat of the R-word – recession – could be avoided and this is pumping some confidence back in the market. But there are more risks on the horizon. The UK is set to exit the European Union at the end of March, and there is still no deal in sight. A measured Brexit would be messy, but a no-deal Brexit would be chaotic – and that chaos would have a knock-on effect on global economies and markets.
But for now, the market assumes that there must be progress in US-China trade talks and the UK must fall in line with an orderly Brexit. If that holds – and if OPEC’s supply commitments stand – the rally in crude prices will continue. And it must. Because the alternative is frightening for all.
Factors driving the current crude rally:
Already, lubricant players have established their footholds here in Bangladesh, with international brands.
However, the situation is being tough as too many brands entered in this market. So, it is clear, the lubricants brands are struggling to sustain their market shares.
For this reason, we recommend an impression of “Lubricants shelf” to evaluate your brand visibility, which can a key indicator of the market shares of the existing brands.
Every retailer shop has different display shelves and the sellers place different product cans for the end-users. By nature, the sellers have the sole control of those shelves for the preferred product cans.The idea of “Lubricants shelf” may give the marketer an impression, how to penetrate in this competitive market.
The well-known lubricants brands automatically seized the product shelves because of the user demand. But for the struggling brands, this idea can be a key identifier of the business strategy to take over other brands.
The key objective of this impression of “Lubricants shelf” is to create an overview of your brand positioning in this competitive market.
A discussion on Lubricants Shelves; from the evaluation perspective, a discussion ground has been created to solely represent this trade, as well as its other stakeholders.Why “Lubricants shelf” is key to monitor engine oil market?
The lubricants shelves of the overall market have already placed more than 100 brands altogether and the number of brands is increasing day by day.
And the situation is being worsened while so many by name products are taking the different shelves of different clusters. This market has become more overstated in terms of brand names and local products.
You may argue with us; lubricants shelves have no more space to place your new brands. You might get surprised by hearing such a statement. For your information, it’s not a surprising one.
Regularly, lubricants retailers have to welcome the representatives of newly entered brands.
And, business Insiders has depicted this lubricants market as a silent trade with a lot of floating traders.
On an assumption, the annual domestic demand for lubricants oils is around 100 million litres, whereas base oil demand around 140 million litres.
However, the lack of market monitoring and the least reporting makes the lubricants trade unnoticeable to the public.
Headline crude prices for the week beginning 11 February 2019 – Brent: US$61/b; WTI: US$52/b
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