HIGHLY sought after types of oil best
suited to meeting the International Maritime Organization's mandate that
caps the sulphur content of marine fuel at 0.5 per cent are now
becoming harder to sell to markets in East Asia, in the wake of US
sanctions on a Chinese shipping fleet.
With IMO 2020 coming into effect on
January 1, certain rare types of West African oil have surged in value
but have had to be marked down owing to the higher transport costs,
reported Reuters.
The United States imposed sanctions on units of China's Cosco on
September 25 for allegedly ferrying crude out of Iran, putting its
massive fleet of oil supertankers off-limits for international companies
and sending freight rates soaring.
The high prices are being shouldered by buyers especially in East Asia,
several traders said, and are making the purchase of oil from key
far-away export regions like West Africa less appealing just when
production of the new fuels should be on the rise.
"West African (oil) grades are commanding such a high premium as they
are requisite feedstock for low sulphur fuel oil (LSFO) barrels," said
oil broker Matt Stanley at StarFuels in Dubai.
"With the advent of IMO 2020 it is now time for these previously less
fashionable grades to shine and for others to become weaker," he added.
Only one per cent of the world's crude oil exports are heavy and sweet
varieties, ideal for refining into low sulphur fuel oil (LSFO), with
West Africa providing the lion's share.
Price offerings for Angolan Cabinda, Nigerian Forcados and Congolese
Djeno hit record highs, but retreated downward again owing to the new
costs of shipping it as far as markets in East Asia.
"It just didn't make economic sense," said one East Asian buyer. "Demand
has been there but with freight suddenly up that high, the prices can't
be justified and the cargoes won't sell until they're brought down
again."
Flows to East Asia from the top heavy sweet oil exporters Angola, Chad
and Cameroon were already down in September to near their lowest monthly
levels in years partly due to the sky-high prices, traders said.
While there is no indication that the ability of refiners to supply the
market with compliant fuels has been undercut by the price pain and
lower exports, reserves are not vast.
"The issue is that with four to seven million tonnes of LSFO in the
greater Singapore area, that is not a huge amount of supply," said Wood
Mackenzie vice president of oil markets Alan Gelder. "It's probably
around the level of several weeks' worth."
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