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The Swedish Club

The world’s refineries can produce more than enough quality 0.50% marine fuel oil (MFO) in 2020, according to a new report on the IMO’s 2020 sulphur emissions regulations for global shipping


The report’s author Bjarne Schieldrop, chief commodities analyst at Nordic corporate bank SEB, says: “All that is needed is a sufficiently high product price, i.e. around US$ 90/tonne less than gasoil.”


The report also says: “Between 2020 and 2022, the first three years IMO regulations are in force, we expect MFO 0.5% to trade at a US$ 90/tonne discount to the Gasoil 0.1% price. Subsequently, we forecast the MFO 0.5% price premium to HFO 3.5% will fall towards US$90/tonne.”


It adds: “We still expect a significant surplus of HFO 3.5% in 2020-22, as well as stock building and a sharply lower HFO 3.5% price. We forecast production of MFO 0.5% fuel oil will cause the Gasoil market to tighten, as middle distillates in the form of VGO are retained within MFO 0.5%. As a result, we still estimate the Gasoil to HFO 3.5% price spread will widen to more than US$450/tonne in 2020 and the MFO 0.5% to HFO 3.5% price spread to increase to over US$360/tonne, before slowly but steadily decreasing once again as the market adapts.”

SEB says that the 28 EU countries can produce more than one million bl/day of MFO 0.5% by using the crude streams consumed in 2017. “That is,” it says, “more than sufficient to cover domestic area demand as well as international bunkering taking place within EU28.”


The report also observes: “The global shipping market is clearly moving down the scrubber path. Prisoners’ dilemma and first mover advantage considerations have caused scrubber installations to snowball. We expect this situation to continue unless it can be proved that scrubbers are damaging the marine environment.”

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