NWE marine gasoil demand increases ahead of new sulfur rules: traders

Northwest European marine gasoil demand is increasing ahead of new sulfur rules within Emission Control Areas from next year, bunker traders said.

“We have seen an increase in demand for MGO since early October,” said a Rotterdam bunker trader.

“Volumes are going right up to 1,000 mt now. We didn’t really have inquiries for that sort of volume before,” said a second Rotterdam bunker trader.

“LSFO demand is falling…some barge operators have started clearing their barges to transport MGO/DMA instead of LSFO,” a Hamburg bunker trader said.

From January 1, 2015, ships will only be allowed to burn fuel with a 0.1% maximum sulfur limit, down from the current 1% sulfur cap, within the ECAs under new International Maritime Organization regulations.

The delivered Rotterdam marine gasoil discount relative to 0.1% FOB ARA gasoil barges has narrowed to $15.25/mt from a $48.75/mt discount on June 12 2014, Platts data show.

Some gasoil traders had yet to see a pronounced increase in demand for marine gasoil, while others said they had seen it pick up.

“Refineries have not yet started to produce more DMA, they’re waiting for demand to pick up, it’s very easily done [producing more DMA],” a gasoil trader said, adding that any increases in DMA demand were likely to have more of an impact on diesel rather than gasoil as refiners could decide to produce more DMA at the expense of diesel.

“I’m definitely seeing demand picking up…I don’t think ships can switch between dirty blends and back that easily so unless they get a decent discount for dirty blends, you might see a lot of vessels only able to buy DMA,” said a second gasoil trader.

Producers, suppliers, shipowners and traders are still uncertain on exactly which fuels will be used next year.

Marine gasoil with 0.1% sulfur seems the obvious first choice, but it carries a hefty premium over residual fuel oil, with European traders saying producers are already increasing the price.

Over the summer, European refiners have been working on developing a new residual-distillate blend of bunker fuel that meets the 0.1% sulfur spec and is less costly than existing marine gasoil and marine diesel, but there are concerns about compatibility between similar “dirty blend” gasoils.

The various specs differ in terms of factors such as paraffinic content, kinematic viscosity, pour point and flash point.

“The majors aren’t really coming up with any good options. There are issues regarding flash point and cloud point. You also really need to clean your tanks properly as [the new dirty gasoil blend] is not compatible with anything,” a northwest European bunker trader said.

“We are going to proceed with using regular gasoil to begin with,” a ship owner said.

LSFO DEMAND

LSFO traders said bunker demand for 1% sulfur fuel oil has decreased over the past few weeks, technically making Mediterranean utilities the only remaining outlet for LSFO cargoes.

“[Demand for LSFO barges] definitely seems to be weaker, and should always remain weak,” one trader said. “There isn’t any demand for that grade anymore, non-EU 2005 spec is redundant.”

Buying interest and liquidity in physical 1% FOB Rotterdam barges have been declining in the Platts Market on Close process, where only 1,000 mt have traded so far in November down from 21,000 mt in October.
Source: Platts