NEW YORK/LONDON – After strong profits in 2019, oil traders have been hit hard early in 2020, losing tens of millions of dollars on bets on gas oil price spreads due to an unexpected collapse in demand in January, sources familiar with the matter said.

The global oil industry expected this year would bring a sharp increase in marine gasoil demand due to new regulations from the International Maritime Organization (IMO) that limited the use of high-sulfur fuel oils beginning in January. Traders expected gasoil demand would spike as it met those regulations, so it could be substituted for higher-sulfur fuels.

Instead, gasoil and diesel demand dropped worldwide due to a warmer-than-expected winter in the Northern Hemisphere and a drop in consumption due to the global spread of the coronavirus.

ICE Gasoil, the European distillate benchmark, and U.S. benchmark heating oil futures last week both hit lows not seen since July 2017. Both are down about 25% this year.

Russell Hardy, chief executive of oil trading group Vitol, said in late February that he expected at least a 2.2 million-barrel per day drop in oil demand in the first quarter largely due to the coronavirus.

“Everyone was long diesel because of IMO,” one diesel trader said. “I think everyone lost and no one won.”

Money managers have stampeded out of positions betting on gains in gasoil. Those net long positions in ICE gasoil hit a more than seven-month high in early January and in a span of about six weeks dropped to their least bullish level in more than a year.

Most traders do not publish detailed results of their gains and losses on trading in individual products. However, eight market sources said numerous trading houses and oil majors have had losses on diesel due to wrong-way bets. The most active oil majors in trading are Total, BP and Shell, while the biggest oil traders are Vitol, Glencore, Trafigura, Gunvor and Mercuria.

Total did not respond to a request for comment. The others all declined comment.

Hedge fund Andurand Capital reportedly lost 8% in January on gasoil, according to the Financial Times.

Trading in U.S. gasoline refining margins has been choppy. The spread narrowed to its tightest level in four months in late January, only to spike to its widest gap since July a month later.

The spread of the coronavirus, particularly in Italy’s industrial heartland in the north, worsened the outlook for diesel. Diesel profit margins in Europe sagged to near a four-year low last week, below $7 a barrel.

“Expectations were that we would see a large share of the shipping industry shift to marine gasoil, which would be a bullish scenario for middle distillate cracks,” ING said in a note.

Another trader said most of the bullish positioning was concentrated in spreads – particularly the gasoil versus fuel oil contracts.

During the latest quarterly results, BP said 2019 was a record year for oil trading, while Shell said 2019 was its best year in the last decade for its marketing businesses with a strong performance from trading.

Glencore said its oil trading results were “excellent” and helped offset other headwinds. A source familiar with Trafigura said the firm had a record first quarter for its financial year that starts Oct. 1.

Other firms have not yet disclosed their results.

Source: energy.economictimes.indiatimes

SINGAPORE (Reuters) – Seven months after the United Nations’ shipping agency brought in hotly anticipated new rules to curb emissions, the raft of technical issues and leap in fuel prices that were expected to result have failed to materialise, ING Bank said on Tuesday.

Global shipping and oil firms had flagged major concerns over potential disruptions from International Maritime Organization (IMO) rules implemented at the start of 2020, which capped marine fuels’ sulphur content at 0.5% against 3.5% previously.

However, shipping and marine fuel suppliers say expected technical issues, such as damage to engines from blending different streams of very low sulphur fuel oil (VLSFO), have proved easier to resolve than previously thought.

Meanwhile, as the coronavirus outbreak battered global oil prices and slashed demand, prices of VLSFO slid along with those of other products.

“We are now well into the IMO 2020 shipping regulations, and it is clear that all the hype leading up to implementation was exaggerated,” said researchers at ING Bank in a note on Tuesday.

The impact of the transition to lower sulphur fuels was partly softened by the COVID-19 pandemic, said ING.

“COVID-19 has only added further pressure to 0.5% very low-sulphur fuel oil (VLSFO), with road transportation having been hit significantly as a result of country lockdowns,” said the Dutch bank.

Lower refiner output of road transportation fuels like gasoline and diesel during the lockdowns helped “ensure enough VLSFO availability for the shipping industry”, said ING.

However, with gasoline demand on the rise following the reopening of economies, VLSFO supplies could tighten throughout the remainder of the year if a resurgence in cases does not lead to renewed lockdowns.

Industry participants had expected ships to switch to burning gasoil to comply with the rules, but a jump in VLSFO output has seen more ships adopt that fuel instead, as a cheaper and more operationally familiar fuel.

In Singapore, by far the world’s largest bunkering hub, VLSFO sales account for about 70% of the monthly total.

However, with the market weighed down by rising inventories amid increasing output, the shipping industry’s preference for VLSFO has offered little support to prices, said ING, and it has performed more weakly than other marine fuels.

Third-quarter bunker fuel supply is estimated to rise by 620,000 barrels per day (bpd) from the second quarter as China and Brazil lift production, consultancy Energy Aspects said.

Dubai became the latest state to join the ongoing calls for ports around the world to make accommodations to permit crew changes. In other locations, including the Philippines, countries have also amended their processes in response to the calls from the IMO and other shipping organizations.

Dubai and the Philippines were both signatories to the statement issued at the end of the International Maritime Virtual Summit hosted on July 9 by hosted by the United Kingdom that discussed the impact of COVID-19 on crew changes. At the conclusion of the summit, thirteen member states issued a joint statement pledging to address solutions to the problems identified for seafarers, including recognizing the importance of their role in maintaining trade and commerce during the pandemic.

IMO Secretary-General Kitack Lim on July 13 sent a letter to  member states urging others to commit to the principles in the joint statement that include designating seafarers as key workers. The member states also committed to explore issues ranging from accepting seafarers’ ID documents as evidence of their key worker status to implementing protocols for crew changes by reviewing national quarantine restrictions and increasing access to commercial flights. In his letter, Lim urges the wide dissemination of the statement and invites member states to contact the U.K. government to join the declaration.

The Dubai Maritime City Authority (DMCA) in its July 15 announcement said that it is now allowing the resumption of crew changing across all ports and anchorage areas in Dubai. Crew changes are being allowed provided they comply with the COVID-19 guidelines and requirements set by the Dubai Health Authority (DHA).

Under Dubai’s new resolution, all agents are required to coordinate with the DMCA and other UAE authorities to ensure the quick processing of crew transfers to and from ships and the airports. All agents are urged to undergo the required medical examinations in compliance with the preventive procedures and guidelines for the COVID 19 virus to preserve the health and safety of both the ship’s crew and relevant personnel.

The DMCA also recently issued a resolution directing the resumption of maritime operations across Dubai’s anchorage areas, which is aimed at enabling ships located in the emirate’s territorial waters to have access to a diverse range of services, including maintenance and repair. They are still required to obtain the proper permits from the DMCA and other relevant authorities and all companies are urged to adhere to the guidelines and health rules to maintain the health and safety of ship crew, visitors and employees.

Earlier in July, the Philippines announced it was opening a “green lane” to allow the free movement of seafarers and personnel across borders. The Philippine government undertook the initiative to ensure that seafarers have access to “speedy and safe travel, subject to health protocols mandated by the government.” This includes safe and swift disembarkation and crew change while also seeking to prevent the spread of COVID-19 for both Filipino and foreign seafarers whether inbound, outbound, or transiting during crew change or repatriation.

“With these guidelines, we are answering the call of the International Maritime Organization (IMO) and the maritime industries, to put in place a framework for ensuring safe ship crew changes and travel during the COVID-19 pandemic,” Foreign Affairs Secretary Teodoro L. Locsin Jr.

The Philippines published a Joint Circular for seafarers, licensed manning agencies, shipping companies, airlines, and other entities involved in facilitating the travel of seafarers for purposes of crew change and repatriation during the COVID-19 pandemic. It sets the minimum standards and process flows that all stakeholders should follow to facilitate the speedy and safe conduct of crew change or repatriation. According to the government, the protocol seeks to complement the existing standard health and safety protocols while creating controlled travel corridors.

The Philippines, which had a large number of overseas foreign workers at the beginning of the pandemic, has been working hard to facilitate the return of its citizens and accommodate crew changes. As of this week, nearly 79,000 Filipinos working overseas have been brought home including over 37,000 seafarers with the most recent repatriates arriving from France, the Netherlands, Qatar, Saudi Arabia, the UAE, the USA, and Vietnam. The return of stranded seafarers from Europe continued this week as the Department of Foreign Affairs facilitated the repatriation of 1,204 sea-based workers who arrived from Italy, the Netherlands, Norway, and Turkey.

Source: pmo

With a planned effective date of January 1, 2020, the International Maritime Organization’s  (IMO) new regulations (IMO 2020) limit the sulfur content in marine fuels that ocean-going vessels use to 0.5% by weight, a reduction from the previous limit of 3.5% established in 2012. The IMO adopted the plan for this policy change in 2008, and in 2016 reaffirmed an implementation date of 2020.

The change in sulfur limits has wide-ranging repercussions for the global refining and shipping industries as well as for petroleum supply, demand, trade flows, and prices. The shipping and refining industries have already begun making preparations and investments to varying degrees to accommodate IMO 2020 regulations.

As the implementation date for the 0.5% sulfur cap approaches, the U.S. Energy Information Administration (EIA) expects that shifts in petroleum product pricing may begin as early as mid-to-late 2019. EIA anticipates that the effects on petroleum prices will be most acute in 2020, and the effects on prices will be moderate after that. However, the regulations will affect petroleum supply, demand, and trade flows on a more long-term basis.

EIA shows the effects of these new regulations in both the Short-Term Energy Outlook (STEO), published monthly, and the Annual Energy Outlook 2019(AEO2019), released in January 2019. Because IMO 2020 will affect petroleum markets across several years, EIA’s STEO forecast and AEO2019 projections provide complementary insights into the effects of the regulations.

Both STEO and AEO2019 are based on current laws and regulations. AEO2019 centers around a reference case based on relationships and general equilibrium models that satisfy projected energy demand under a set of constraints.

STEO provides forecasted data that are updated every month. EIA uses a combination of econometric models based on historical data to forecast where EIA anticipates energy markets will move in the next two years. The STEO relies on historical data, short-term trends, and analyst judgment in creating this forecast.

Although the STEO forecasts fewer variables than the Annual Energy Outlook, STEO’s publication frequency allows EIA to incorporate developments related to the IMO rule more regularly than AEO2019, which projects variables at an annual frequency through the year 2050. In addition, because the STEO is published monthly, EIA adjust its forecasts continuously to incorporate new information.

Because the current STEO forecasts end in December 2020, the data in AEO2019 provide EIA’s projections with insight into how IMO 2020 will affect petroleum markets beyond 2020. In addition, AEO2019 has more detailed data on refinery operations, marine fuel use, and fuel costs than the STEO. Projections in the Annual Energy Outlook are generated from EIA’s highly detailed, structured equilibrium models in its National Energy Modeling System.

The first section of this report explains the findings related to IMO 2020 from the STEO and AEO2019 analysis. The second section discusses the uncertainties that might affect the way that actual outcomes deviate from EIA’s forecasts and projections.

Globally, marine vessels are a critical part of the global economy, moving more than 80% of global trade by volume and more than 70% by value. They account for about 4% of global oil demand (about 4.3 million barrels per day (b/d) according to the International Energy Agency). In the United States, consumption of bunker fuel (the fuel mix consumed by large ocean-going vessels) is a relatively small share of total energy demand. In 2018, U.S. bunker fuel consumption represented about 3% of total transportation energy use and just 2% of total U.S. petroleum and liquid fuel use. Of the 4.3 million b/d of global marine sector demand, about 10% of those sales originated at U.S. ports. Those sales of marine fuels at U.S. ports represent the AEO2019 international marine demand projections.

Residual oil—the long-chain hydrocarbons remaining after lighter and shorter hydrocarbons such as gasoline and diesel have been separated from crude oil—currently accounts for the largest component of bunker fuel. Although distillate fuels, the other large component in bunker fuel, have alternative uses and markets outside of marine fuels, residual oils have few other alternative markets. About 80% of total U.S. residual fuel demand is for marine bunkering. Therefore, the steps vessel operators take to comply with the new IMO 2020 sulfur limits have major implications for the use of residual fuel oils in marine fuels, for the price of residual fuel oil and its competitors, and for the refineries that produce residual fuel oil.

Operators of marine vessels have several options for complying with IMO 2020 sulfur limits. They can switch their ships to a lower-sulfur fuel that complies with the new IMO rules, which would likely increase demand for distillate and low-sulfur residual oils. Another option is to use scrubbers to remove pollutants from ships’ exhaust, allowing ships to continue to use higher-sulfur fuels. Vessel operators can also switch their ships to non-petroleum-based fuels, such as liquefied natural gas (LNG). In the AEO2019 Reference case projections, the fuel mix of ocean-going marine vessel bunkering in the United States changes significantly because of the new global sulfur fuel limits.

The AEO2019 and STEO projections only consider sales of bunker fuel from ports inside the United States. Because the United States is a member of the IMO and U.S. port and maritime authorities currently enforce all IMO regulations, the implied rate of compliance to the IMO sulfur limits for the United States in the AEO2019 and STEO is 100%. Although the level of compliance with the new IMO sulfur limits may vary globally, the AEO2019 (and the STEO) do not make explicit assumptions about compliance levels beyond the United States.

EIA projects that the share of high-sulfur residual fuel oil consumed by U.S. ocean-going bunker fuel markets drops from 58% in 2019 to 3% in 2020, and then rebounds to 24% in 2022. Despite a recent increase in scrubber installation and orders, the number of vessels installed with scrubbers required to continue using high-sulfur residual fuel oil remains limited. As a result, AEO2019 projects a large but brief increase in the share of distillate fuel oil and low-sulfur residual fuel oil in 2019 and shortly after 2020. A recovery in high-sulfur residual fuel oil consumption driven by scrubber installations does not occur until 2022 but at levels far lower than before the 2020 IMO rule implementation. After 2023, high-sulfur residual fuel oil consumption declines throughout the AEO2019 Reference case projection, down to a 22% share of U.S. ocean-going marine vessel bunker fuel by 2025. In AEO2019, EIA projects that the share of low-sulfur residual fuel oil consumed in U.S. ocean-going marine vessel bunkering will increase from 38% in 2020 to 43% in 2025.

Similarly, EIA projects that the need to use distillate in lower-sulfur bunker fuels will increase distillate’s share of U.S. bunker demand from 36% in 2019 to 57% in 2020, although this share declines to 29% by 2025.

Outside of residual fuel oils and distillate, STEO forecasts that the use of LNG in marine bunkering will be limited through 2020. Similarly, the AEO2019 Reference case projects limited use of LNG in the next five years, reflecting the high initial infrastructure development cost and the limited current infrastructure to accommodate LNG bunkering at U.S. ports. In the medium and long term, this infrastructure barrier decreases, and LNG’s share of U.S. bunkering grows to 7% in 2030 and to 10% by 2050.

Despite bunker fuel’s relatively small share of both the global and U.S. liquid fuels markets, EIA expects a shift in demand in the global bunker fuel market from high-sulfur fuel oil to low-sulfur distillate fuel and low-sulfur fuel oil. This shift will result in a change in the relative prices of those fuels. EIA expects the demand shift to increase global prices for light- and low-sulfur refined petroleum products such as diesel fuel, gasoline, jet fuel, and low-sulfur fuel oil. This shift, in turn, will lead to a decrease in the prices of high-sulfur refined petroleum products, such as high-sulfur fuel oil. This price premium for lower-sulfur refined products will be most evident at the wholesale (refinery and bulk terminal) level in the form of higher refining margins for low-sulfur products such as diesel fuel.

Source: fuelsandlubes