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Friday, December 15, 2017

Fuel oil demand declining – relative prices increasing

In connection with the new MARPOL Annex VI requirements, we have examined the development of fuel oil demand and prices.

 

The International Energy Agency (IEA) sees 8.8 mbd of crude distillation capacity being added to the refinery system between 2008 and 2013. Some of these refineries (Indian) will not produce heavy fuel oil (HFO) at all. Regionally, refinery capacity growth is concentrated in China, Other Asia and the Middle East, with these three segments accounting for roughly a third of new distillation capacity additions. Considerable investment is also taking place in order to upgrade capacity and to upgrade desulphurisation units to try and meet the challenge of the concentration of demand in transportation fuels and weak fuel oil cracks.

 

The graphs below are based on world oil consumption until 2007 and a projection based on the average change since 1993. The graphs show a declining trend for fuel oil of 1.5% per annum. The fuel oil share of demand has declined from 28% in 1970, to 25% in 1980, 17% in 1990, 14% in 2000, and 11% in 2007. The projection for the fuel oil share of demand in 2015 is 9%. 

 

 

 

The consumption of fuel oil varies greatly by region and the regional refineries are set up for this. In North America fuel oil amounts to only 4% of total consumption. In the Middle East it is 26%, as power stations and desalination plants use HFO. In China it is less than in Asia overall as China uses coal to generate electricity.

 

 

 

 

 

The % share of various fuels in different regions

 

Product

N America

SC America

Europe

Former Soviet Union

Middle East

Africa

Asia

China

Japan

World

Light distillates

45%

30%

22%

27%

21%

23%

28%

26%

35%

31%

Middle distillates

29%

36%

48%

32%

33%

44%

36%

37%

32%

36%

Fuel oil

4%

15%

10%

13%

26%

16%

14%

11%

13%

11%

Others

22%

19%

20%

29%

20%

17%

22%

26%

19%

21%

Total

100%

100%

100%

100%

100%

100%

100%

100%

100%

100%

 

The table below shows that, compared to the prices of Premium Unleaded Gasoline, High Sulpher Fuel Oil prices were at their highest in 2002 (71% of Premium Unleaded) and declined in 2003, to increase again from 57% of Unleaded Gasoline in 2005 to 69% in June 2008. This indicates a tighter availability of Fuel Oil.

 

The relative prices of various products FOB Rotterdam

 

 

Rotterdam FOB

 

 

 

Rotterdam FOB

Year

Premium unleaded

Gasoil

HSFO 3.5%

 

Year

Premium unleaded

Gasoil

HSFO 3.5%

1999

21.94

20.12

14.37

 

1999

100%

92%

65%

2000

36.00

34.38

21.42

 

2000

100%

96%

60%

2001

29.86

29.16

17.97

 

2001

100%

98%

60%

2002

29.09

27.81

20.65

 

2002

100%

96%

71%

2003

35.46

33.99

23.37

 

2003

100%

96%

66%

2004

NA

NA

NA

 

2004

NA

NA

NA

2005

63.97

67.70

36.21

 

2005

100%

106%

57%

2006

74.17

77.47

45.18

 

2006

100%

104%

61%

2007

83.35

85.00

53.39

 

2007

100%

102%

64%

Jun-08

135.89

113.58

93.30

 

Jun-08

100%

84%

69%

 Contact: Erik Ranheim