European refiners are increasing low sulfur fuel oil production in preparation for the January 2020 implementation of a 0.5% global marine fuel sulfur cap, sources said.
Refiners in Europe are also cutting high sulfur fuel oil production.
“European refineries aren’t producing HSFO anymore, as they are all either making LSFO or burning fuel internally,” a fuel oil trader said Tuesday.
The softening of the backwardation in the Northwest European fuel oil market from values seen in Q3 and Q4 2018 has led traders to seek storage tank contracts in preparation for storing marine fuel compliant with the International Maritime Organization’s 0.5% sulfur cap.
Ample availability outweighed any prospect of strength in the February high sulfur-low sulfur spread, which was assessed at $7.25/mt on Tuesday, down $3.00/mt on the week.
“Everyone wants to get storage back because they are looking to 2020,” another fuel oil trader said last week. “It’s a 2020 outlook, rather than the structure of the HSFO/LSFO curves.”
Spot demand in the LSFO market in Northwest Europe remained weak, and there was ample availability in the region, despite refineries in Northwest Europe operating on heavier sourer crude slates, which would typically reduce LSFO output.