Tankers seeing lower fuel oil trades from Asia

In the period of 2013 to 2014, the reported fixtures of fuel oil on VLCCs, suezmaxes and panamaxes dropped by 5m metric tonnes each, while the fixtures of fuel oil on aframaxes decreased by 2m metric tonnes.

“Increased Asian refinery capacity has also resulted in higher production of fuel oil (as well as all other oil products) in Asian countries,” Poten & Partners said in a recent report. “This increase in domestic supply naturally resulted in decreased imports of fuel oil, with Southeast Asian fixtures declining over 14m metric tonnes from 2012-2014.”

Asian refining capacity has been increasing over the years, with BP Statistical Review showing that the refining capacity has grown by 5m barrels per day (bpd) from 2007 to 2013.

The International Energy Agency (IEA) has forecast that of the expected 6.4m bpd expansion in global refinery capacity from 2015-2020, Asia will contribute 42% or 2.7m bpd, leading to a fuel oil demand decrease of 1.1m bpd.

In fuel oil trading volumes, there are no promising signs pointing to increases as well. From 2013 to 2014, the global volume of the fuel oil trade decreased by over 6m metric tonnes. Shrinking fuel oil production in Russia, one of the largest producers, is one of the drivers of decreasing fuel oil trade.

In January, Russia implemented a program that will gradually raise their export duty on fuel oil to the same level as crude oil duties by 2017. As a result, starting in 2017, oil companies will most likely increase crude oil exports at the expense of fuel oil exports.

“With fuel oil demand and imports decreasing in Asia, arguably the product’s biggest market, and around the world, it is difficult to envision how fuel oil will remain highly in demand and traded in the future,” Poten & Partners commented.

At the same time, demand for global residual fuel continues to diminish from the current level of 8m bpd, due mainly to environmental regulations, with estimates showing that fuel oil production is on track to fall by more than 1m bpd through 2020.

Since January this year, IMO’s Marpol regulation was enforced in geographically-defined Emissions Control Areas (ECAs), reducing the maximum sulphur content in bunker fuel to 0.1% for ships travelling within 200 miles offshore in North America and Europe’s Baltic and North Seas.

“Now, most affected shipowners are using marine gasoil, a middle distillate low sulphur fuel, in these coastal zones, with many others starting to look to the fuel as a viable alternative to residual fuel oil,” Poten & Partners said.