Popular Middle East oil falls from favor on cusp of IMO 2020
SINGAPORE (Bloomberg) - Once a highly sought-after grade of oil from the Middle East, Abu Dhabi’s Murban is falling out of favor as the world’s top refiners seek out other types of crude ahead of a historic ship-fuel overhaul.
Murban is typically prized for its light and middle distillate yield but the grade’s price has dropped as Asian refiners focus on purchasing oil that produces more low-sulfur, high-viscosity marine fuels due to IMO 2020. Buying interest has also dimmed as rising supertanker rates made supplies from Russia’s Far East and the Asia-Pacific more attractive.
Ships are mandated to use fuels with 0.5% sulfur or less from Jan. 1 and rising demand for IMO-compliant products such as very-low sulfur fuel oil are prompting refiners to bid up crude that can yield more of such output. Grades such as Russia’s ESPO have become more favored as a result, said four traders and refiners, while Australia’s Van Gogh and Pyrenees turned pricey due to demand for blending.
Murban for February traded at a discount of 15 cents against its official price on Thursday, dropping from a 25-cent premium just days before. The fall in prices also came as very-large crude carrier costs from Middle East to China rose to a two-month high. Russian ESPO prices, on the other hand, traded at a premium of $8 to $8.40 a barrel over its benchmark price, the highest in about two months as Chinese refined snapped up cargoes.
Distillates Disappoint. This month, the popularity of Murban crude also eroded as processing profits from gasoil were at an average of $15 a barrel so far in December, about 10% lower than the average for the second half of the year. While Murban at a discount isn’t good news for term lifters, buying interest could reemerge should spot differentials fall further or official prices decline.
While marine gasoil was previously seen as the biggest beneficiary from the industry’s scramble for IMO-compliant fuels, shippers have so far gravitated to VLSFO due to its high viscosity that aids engine performance. Vessels that ply long-haul routes -- from Europe or America to Asia -- are particularly in favor of this option, according to Abhishek Nambiar, an oil market analyst at FGE.
Low-sulfur diesel as shipping fuel is “losing its status as an IMO golden child,” wrote Bank of America Merrill Lynch analysts in a Dec. 13 note. Gasoil crack spreads have averaged $16.70 a barrel so far in the second half of 2019, versus an estimate by Goldman Sachs Group Inc. in August set at $17.60 for the six-month period.
