From Reuters
U.S. sour crude prices this week tumbled to the lowest in a year alongside a drop in high-sulfur fuel oil as marine shippers gear up to meet environmental rules aimed at curbing emissions from ocean-going vessels, traders said.
The International Maritime Organization’s (IMO) mandate for vessels to shift to cleaner burning marine fuels effective Jan. 1 will reduce demand for sour crudes, weakening demand for U.S. Gulf Coast grades such as Mars crude, traders said.
Sour crude grades also have come under pressure as the spread between U.S. crude and global benchmark Brent narrows, denting export demand, and as the United States prepares to release sour crude from its strategic reserve, traders said.
Mars Sour crude, a benchmark for sour U.S. Gulf Coast grades, dropped to a $2.58 per barrel discount to Light Louisiana Sweet (LLS) crude this week, from a $2 premium last month. On Wednesday, Mars traded 60 cents above U.S. crude futures, the lowest since early August 2018.
“It’s bearish for sours in the IMO world,” one trader said, referring to the U.N. agency’s low-sulfur mandate. Refiners are shifting to low-sulfur crudes to produce IMO-compliant fuel oil for shippers, another said.
The sharp drop in high-sulfur fuel oil prices also coincided with Mexican state-owned Pemex’s decision to raise September prices for its Maya sour crude by lifting its K factor to $3.75 a barrel.
High-sulfur fuel oil, which historically has been burned by ocean-going vessels, makes up about 40 percent of the formula used to set heavy Maya crude prices, energy investment bank Tudor, Pickering, Holt & Co said in a note this week.
Earlier this year, U.S. sanctions on Venezuela, a major supplier of heavy crude, and pipeline constraints in Canada had pushed demand for Mars and other sour crudes higher as U.S. refiners scrambled to secure new supplies.
Other factors weighing on Mars include the U.S. government’s offer of 10 million sour barrels from the Strategic Petroleum Reserve between Oct. 1 and Nov. 30, and the coming fall refinery maintenance season, which depresses crude demand, traders said.
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MY TAKE: Low sulfur diesel (sold at your nearby filling station) is likely to spike to more than $1.00/gallon higher than regular unleaded gasoline.
IMO 2020 Regs Update - August 30
IMO 2020 Regs Update - August 30
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: IMO 2020 Regs Update - August 30
Morgan Stanley Equity Research Team - Refiners dated 8/29/2019
IMO 2020: Comments from the Conference Calls (2Q19) My comments are in blue.
We summarise key takeaways on IMO 2020 from the 2Q conference calls, with the IMO 2020 deadline just 4 months away.
The upcoming IMO 2020 regulations were a key focus on the 2Q conference
calls. We also note that some crude oil and refined product forward curves are
now beginning to reflect the expected impacts (see Exhibit 1 to Exhibit 4).
Refiners have been using 2019 maintenance to prepare for the regulations. We
noted an unusually high level of maintenance during Spring 2019, which was also
corroborated by comments on several earnings calls. For example, Repsol has
accelerated maintenance to allow its refineries to run at maximum capacity in
2020, while BP has been conducting a large turnaround program to upgrade
facilities ahead of 2020. Marathon Petroleum is doing work to increase coking
capacity at its Garyville refinery and optimise coker feeds and residual processing
capacities between its refineries. ExxonMobil reported a higher-than-normal level
of downstream maintenance, partly due to IMO 2020 preparations. We would
expect this to drive higher utilisation levels and an uptick in crude throughput in
late Q4 and 2020. < Bullish for crude oil demand.
Compliant fuels are being developed but remain in the testing phase at the
moment. Refiners are taking a variety of approaches to compliant fuel solutions.
Many plan to supply compliant fuels directly. For example, Valero has been
working with shipping companies to develop low sulphur blends and has three
companies currently using its low sulphur fuel oil blend. Saras has been testing
its compliant fuel offerings in its own labs and those of engine producers and
has sold four cargoes so far. However, it acknowledged that questions around
compatibility remain on a worldwide basis. Neste has also been testing its
offering. Other companies, such as PBF, do not plan to sell compliant fuels
directly to end users, but rather will supply low sulphur components to the
market.
Most refiners expect a boost to distillate demand. Valero expects a large step change in
diesel demand when the regulations come in, which they do not believe is
reflected in current forward curves. Marathon is anticipating a 1-2 mb/d increase
in distillate demand globally,even with recent economic data. They estimate this
could boost diesel cracks by $2-5/bbl. Repsol expects distillates to be part of the
solution for their two compliant fuel options,and expects straight very low
sulphur fuel oil will be very expensive. S-Oil expects diesel stock building in Q4
to boost diesel cracks. Phillips 66 sees a diesel element in their marine fuel
solution but does not think the global refining system will be able to produce
enough diesel to meet the increase in marine demand, which could also create a
pull on other products such as low sulphur VGO from the gasoline pool.
Highlights from the rest of the report.
> There will be a glut of high sulfur fuel oil and disposal or processing into usable products will be expensive.
> Refiners expect a widening of the sweet/sour differential
> Scrubber orders have slowed because most shippers have decided to wait and see if price differentials between high and low sulphur fuels are wide enough to justify the big expense.
> Shipyards are report a backlog of scrubber installations and many unable to meet 1-1-2020 deadline.
MY TAKE: IMO 2020 is a big deal that will have an impact on all low sulphur fuels. Truckers will complain about high prices for diesel.
IMO 2020: Comments from the Conference Calls (2Q19) My comments are in blue.
We summarise key takeaways on IMO 2020 from the 2Q conference calls, with the IMO 2020 deadline just 4 months away.
The upcoming IMO 2020 regulations were a key focus on the 2Q conference
calls. We also note that some crude oil and refined product forward curves are
now beginning to reflect the expected impacts (see Exhibit 1 to Exhibit 4).
Refiners have been using 2019 maintenance to prepare for the regulations. We
noted an unusually high level of maintenance during Spring 2019, which was also
corroborated by comments on several earnings calls. For example, Repsol has
accelerated maintenance to allow its refineries to run at maximum capacity in
2020, while BP has been conducting a large turnaround program to upgrade
facilities ahead of 2020. Marathon Petroleum is doing work to increase coking
capacity at its Garyville refinery and optimise coker feeds and residual processing
capacities between its refineries. ExxonMobil reported a higher-than-normal level
of downstream maintenance, partly due to IMO 2020 preparations. We would
expect this to drive higher utilisation levels and an uptick in crude throughput in
late Q4 and 2020. < Bullish for crude oil demand.
Compliant fuels are being developed but remain in the testing phase at the
moment. Refiners are taking a variety of approaches to compliant fuel solutions.
Many plan to supply compliant fuels directly. For example, Valero has been
working with shipping companies to develop low sulphur blends and has three
companies currently using its low sulphur fuel oil blend. Saras has been testing
its compliant fuel offerings in its own labs and those of engine producers and
has sold four cargoes so far. However, it acknowledged that questions around
compatibility remain on a worldwide basis. Neste has also been testing its
offering. Other companies, such as PBF, do not plan to sell compliant fuels
directly to end users, but rather will supply low sulphur components to the
market.
Most refiners expect a boost to distillate demand. Valero expects a large step change in
diesel demand when the regulations come in, which they do not believe is
reflected in current forward curves. Marathon is anticipating a 1-2 mb/d increase
in distillate demand globally,even with recent economic data. They estimate this
could boost diesel cracks by $2-5/bbl. Repsol expects distillates to be part of the
solution for their two compliant fuel options,and expects straight very low
sulphur fuel oil will be very expensive. S-Oil expects diesel stock building in Q4
to boost diesel cracks. Phillips 66 sees a diesel element in their marine fuel
solution but does not think the global refining system will be able to produce
enough diesel to meet the increase in marine demand, which could also create a
pull on other products such as low sulphur VGO from the gasoline pool.
Highlights from the rest of the report.
> There will be a glut of high sulfur fuel oil and disposal or processing into usable products will be expensive.
> Refiners expect a widening of the sweet/sour differential
> Scrubber orders have slowed because most shippers have decided to wait and see if price differentials between high and low sulphur fuels are wide enough to justify the big expense.
> Shipyards are report a backlog of scrubber installations and many unable to meet 1-1-2020 deadline.
MY TAKE: IMO 2020 is a big deal that will have an impact on all low sulphur fuels. Truckers will complain about high prices for diesel.
Last edited by dan_s on Mon Sep 02, 2019 8:59 am, edited 1 time in total.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: IMO 2020 Regs Update - August 30
Send me an email if you'd like to see the full report from Morgan Stanley. dmsteffens@comcast.net
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group