Impending IMO 2020 pushes discounted Asian crudes into premiums

Impending IMO 2020 pushes discounted Asian crudes into premiums

Singapore — The fast-approaching lower sulfur cap for global maritime shipping fuels pushed prices for specific ‘cheap’ crude grades into significant premiums in H1 2019, as markets prepare for the IMO 2020 kick off in January next year, sources told S&P Global Platts this month.

Crude grades yielding mostly fuel oil are typically ‘heavier’ by specific gravity, and tend to trade in discounts compared with those yielding mainly middle distillates or naphtha.

However, the imposition of lower sulfur fuel emission standards adopted by the International Maritime Organization has skyrocketed demand for crudes that can yield heavy marine fuel in as few steps as possible.

Refiners have started sourcing heavy, sweet crudes to test producing low sulfur fuel ahead of the implementation of the sulfur mandate at the start of 2020, market sources said.

Some are even being directly blended into marine bunkering fuel streams, skipping any desulfurization or cracking in the process and making lower sulfur fuel-oil rich barrels extremely lucrative to crude traders.

The IMO is set to enforce a new 0.5% global sulfur cap on bunker fuels from January 1, 2020, lower from the present 3.5% limit.

Earlier this year, a cargo of Australia’s Pyrenees crude was heard sold to an oil major at a premium of $9/b over Dated Brent. The heavy sweet crude grade traded in a range of $1/b to $4/b over Dated Brent in 2018, Platts records show.

Australian heavy crudes have specifications such as high flashpoints, that allow them to be blended directly into fuel streams without much processing.

However, even grades requiring some refining process are starting to reflect IMO 2020 demand as early as June this year, traders said.

Sudanese Nile and Dar Blend crudes for instance, have low flashpoints, making refining a necessary step of the process. However, the grades’ other qualities, mainly their low sulfur content and high fuel oil yield, have suddenly pushed them into the spotlight amongst Asian crude traders.

Price differentials for South Sudan’s Dar Blend crude grade flipped into premiums earlier this month, market players told Platts.

“Nile and Dar Blend are definitely [trading in] premiums now,” a crude trader with a Japanese trading company said.

“IMO is the main reason — [these grades have a] low flashpoint so they cannot be blended [directly], but are being taken into refineries instead,” he added.

Dar Blend, produced from blocks 3 and 7 in South Sudan’s northeastern states formerly known as the Upper Nile state, is the country’s main crude grade.

July loading Dar Blend premiums were heard traded at a premium to Platts Dated Brent, with some traders noting that the premium rose to as high as $2/b.

Demand for heavy sweet crudes in the region has gone up ahead of lowering of the sulfur fuel cap set by the International Maritime Organisation come 2020.

Traders also noted that margin wise, the values were not very favorable.

The 380 CST high sulfur fuel oil swap crack against Brent swap averaged minus $3.95/b for the month of April and has averaged minus $5.50/b so far in May, S&P Global Platts data showed.

“I don’t expect premiums to keep up to these levels as crack values are not very strong,” a second crude trading source said.

The July Dar Blend differential to Platts Dated Brent on Monday was assessed at $1.55/b, the highest level since the grade was launched in 2009.


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